Financial Accounting
3rd Edition
ISBN: 9780133791129
Author: Jane L. Reimers
Publisher: Pearson Higher Ed
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Chapter 11, Problem 17E
Chip Company is making estimates of had debts and warranties at year end, December 31, 2009. The firm believes that it will have declining revenue in 2010, so the
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Company E is a retailer of commercial and residential plumbing products. Steven Owens, the company’s staff accountant, is in the process of making year-end adjusting entries for uncollectible accounts receivable. Recently, the company has experienced an increase in accounts that have become uncollectible. As a result, Owens believes that the company should increase the percentage used for estimating doubtful accounts from 2% to 5% of credit sales. This change will significantly increase bad debt expense, resulting in a drop in earnings for the first time ever for the company. The company president, Thomas Williams, is under considerable pressure to meet the earnings goals for the fiscal year. He suggests to Steven that this is “not the proper time” to change the estimate. He instructs Steven to keep the estimate at 2%. Steven is confident that 2% is way too low, but he follows Thomas' instructions.
Evaluate the decision to use the lower percentage to improve earnings.
Are Thomas and…
Use the following information to answer the next two questions:
Lewis Company uses the allowance method for recording its expected credit losses. It estimates bad debts at 2% of credit sales, which were $900,000 during the year.
On December 31, the Accounts Receivable balance was $150,000, and the Allowance for Doubtful Accounts had a balance of $12,200 before adjustments.
What is the amount of bad debt expense Lewis Company will report on their Income Statement this year?
Select one:
a. 17,756
b. 3,000
c. 12,200
d. 18,000
e. 2,756
California Cannery began in 2008 with a debit balance in Accounts Receivable $150,000 and a credit balance in Allowance for Doubtful Accounts for 7,500 for the year. During the year California Cannery sold 1,300,000 of product and collected 1,350,000 from customers. In addition, $4,000 of Accounts Receivable balance was written off as uncollectable during the year. Management uses the allowance method to account for bad debts and believes that ultimately 5% of the year-end balance in Accounts Receivable will not be collected.
How much bad debt expenses will be recorded in 2008?
Chapter 11 Solutions
Financial Accounting
Ch. 11 - Describe why earnings is such an important number.Ch. 11 - Prob. 2YTCh. 11 - Prob. 3YTCh. 11 - Prob. 4YTCh. 11 - Prob. 5YTCh. 11 - Prob. 1QCh. 11 - Prob. 2QCh. 11 - Prob. 3QCh. 11 - Prob. 4QCh. 11 - Prob. 5Q
Ch. 11 - Prob. 6QCh. 11 - Prob. 7QCh. 11 - Prob. 8QCh. 11 - Prob. 9QCh. 11 - Prob. 10QCh. 11 - Prob. 11QCh. 11 - Prob. 12QCh. 11 - Prob. 13QCh. 11 - Prob. 1MCQCh. 11 - Prob. 2MCQCh. 11 - Prob. 3MCQCh. 11 - Prob. 4MCQCh. 11 - Prob. 5MCQCh. 11 - Prob. 1SECh. 11 - How do you think analysts evaluate the quality of...Ch. 11 - Prob. 3SECh. 11 - Prob. 4SECh. 11 - Prob. 5SECh. 11 - Prob. 6SECh. 11 - Prob. 7SECh. 11 - Prob. 8SECh. 11 - Prob. 9SECh. 11 - Prob. 10SECh. 11 - Prob. 11SECh. 11 - How does U.S. GAAP differ from IFRS in the way...Ch. 11 - Prob. 13SECh. 11 - Prob. 14ECh. 11 - Loder Company had a good year, and recorded a...Ch. 11 - Mismatch Company had a terrible year and will...Ch. 11 - Chip Company is making estimates of had debts and...Ch. 11 - Prob. 1IECh. 11 - Prob. 2IECh. 11 - Prob. 3IE
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