King Company is preparing its December 31, 2023 financial statements. The company had accrued bad debts expense for the period of $25,000 and had a balance in Allowance for Doubtful Accounts of $37,500. In February, its largest customer abruptly declared bankruptcy after its CEO embezzled all of its funds and took off in the company jet for parts unknown in January 2024. The customer owed King $50,000. The company’s financial statements were issued on March 10, 2024. Which of the following is correct regarding this event? Answer a. The company should make an adjusting journal entry to accrue a loss of $50,000 that will be recognized in 2023 net income. b. The company should make an adjusting journal entry to increase bad debts expense and the allowance for doubtful accounts by $25,000 for 2023. c. No additional expense or loss should be accrued in 2023 because this is a nonrecognized subsequent event. The information should be disclosed in the notes to the 2023 financial statements. d. The company should make an adjusting journal entry to increase bad debts expense and the allowance for doubtful accounts by $12,500 for 2023.
King Company is preparing its December 31, 2023 financial statements. The company had accrued
Answer
The company should make an
The company should make an adjusting journal entry to increase bad debts expense and the allowance for doubtful accounts by $25,000 for 2023.
No additional expense or loss should be accrued in 2023 because this is a nonrecognized subsequent event. The information should be disclosed in the notes to the 2023 financial statements.
The company should make an adjusting journal entry to increase bad debts expense and the allowance for doubtful accounts by $12,500 for 2023.
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