Intermediate Accounting, 10 Ed
10th Edition
ISBN: 9781260310177
Author: Mark W. Nelson, Wayne B. Thomas J. David Spiceland
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 7, Problem 7.4DMP
Ethics Case 7–5
Uncollectible accounts
• LO7–5
You have recently been hired as the assistant controller for Stanton Industries, a large, publicly held manufacturing company. Your immediate superior is the controller who, in turn, is responsible to the vice president of finance.
The controller has assigned you the task of preparing the year-end
After showing your analysis to the controller, he tells you to change the aging category of a large account from over 120 days to current status and to prepare a new invoice to the customer with a revised date that agrees with the new aging category. This will change the required allowance for uncollectible accounts from $180,000 to $135,000. Tactfully, you ask the controller for an explanation for the change and he tells you “We need the extra income; the bottom line is too low.”
Required:
1. What is the effect on income before taxes of the change requested by the controller?
2. Discuss the ethical dilemma you face. Consider your options and responsibilities along with the possible consequences of any action you might take.
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Question 12 of 20
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During its first year of operations, Pharoah Company had credit sales of $3,124,900; $652,500 remained uncollected at year-end. The
credit manager estimates that $36,100 of these receivables will become uncollectible.
(a)
Prepare the journal entry to record the estimated uncollectibles. (Credit account titles are automatically indented when amount is
entered. Do not indent manually.)
Account Titles and Explanation
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(b)
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ACTIVITY 59
EVALUATING ACCOUNTS RECEIVABLE
Purpose:
• Analyze trends in Accounts Receivable and the Allowance for Bad Debt accounts.
Assume you work in the corporate loan office of Lanford Bank. Chris Ives, owner of CI Manufacturing, Inc.
has come to you seeking a loan of $350,000 for new manufacturing equipment to expand his operations.
He proposes to use his accounts receivable as collateral for the loan and has provided you with the
following financial statements.
02
Q3
(5 in thousands)
Income Statement
Sales revenue
Cost of goods sold
Gross profit
Q4
Operating expenses
Operating income
Balance Sheet
Q1
Accounts receivable
Allowance for bad debts.
Ratio Analysis
Accounts receivable turnover ratio
Allowance as a percentage of sales revenue
b.
C.
d.
e.
f.
Year 7
$1,475
876
599
518
$.81
$ 458
23
Specific Accounts
3.22
1.56%
Year 6
$1,589
947
642
487
$ 155
$387
31
Examine the trend in each of the following accounts.
Sales revenue:
In Year 6 it (increased / decreased), and then in Year 7…
Chapter 8 Assignment Question 1 of 2 View Policies Current Attempt in Progress Splish Fashions has been in business several years. At the end of the current year, the ledger shows the following: Accounts Receivable Sales Revenue Allowance for Doubtful Accounts R$ 343,000 Dr. 2,241,900 Cr. 5,100 Cr. Account Titles and Explanation Debit - / 1 Credit ||| Bad debts are estimated to be 6% of accounts receivable. Prepare the entry to adjust Allowance for Doubtful Accounts. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. List debit entry before credit entry.) RED E :
Chapter 7 Solutions
Intermediate Accounting, 10 Ed
Ch. 7 - Prob. 7.1QCh. 7 - Prob. 7.2QCh. 7 - Prob. 7.3QCh. 7 - Prob. 7.4QCh. 7 - Prob. 7.5QCh. 7 - Prob. 7.6QCh. 7 - Prob. 7.7QCh. 7 - Distinguish between the gross and net methods of...Ch. 7 - Briefly explain the accounting treatment for sales...Ch. 7 - Explain the typical way companies account for...
Ch. 7 - Prob. 7.11QCh. 7 - Prob. 7.12QCh. 7 - Briefly explain the difference between the income...Ch. 7 - Prob. 7.14QCh. 7 - Is any special accounting treatment required for...Ch. 7 - Explain any possible differences between...Ch. 7 - Prob. 7.17QCh. 7 - What is meant by the discounting of a note...Ch. 7 - What are the key variables that influence a...Ch. 7 - Prob. 7.20QCh. 7 - Prob. 7.21QCh. 7 - (Based on Appendix 7B) Marshall Companies, Inc.,...Ch. 7 - Prob. 7.1BECh. 7 - Prob. 7.2BECh. 7 - Prob. 7.3BECh. 7 - Prob. 7.8BECh. 7 - Prob. 7.9BECh. 7 - Prob. 7.10BECh. 7 - Prob. 7.11BECh. 7 - Prob. 7.12BECh. 7 - Prob. 7.13BECh. 7 - Uncollectible accounts; balance sheet approach ...Ch. 7 - Uncollectible accounts; solving for unknown LO75,...Ch. 7 - Prob. 7.16BECh. 7 - Note receivable LO77 On December 1, 2018,...Ch. 7 - Long-term notes receivable LO74 On April 19,...Ch. 7 - Prob. 7.19BECh. 7 - Factoring of accounts receivable LO78 Refer to...Ch. 7 - Prob. 7.21BECh. 7 - Discounting a note LO78 On March 31, Dower...Ch. 7 - Receivables turnover LO78 Camden Hardwares credit...Ch. 7 - Prob. 7.24BECh. 7 - Prob. 7.25BECh. 7 - Prob. 7.26BECh. 7 - Prob. 7.3ECh. 7 - Prob. 7.4ECh. 7 - Prob. 7.9ECh. 7 - Prob. 7.10ECh. 7 - Prob. 7.12ECh. 7 - Prob. 7.13ECh. 7 - Prob. 7.14ECh. 7 - Prob. 7.17ECh. 7 - Prob. 7.23ECh. 7 - Factoring of accounts receivable with recourse ...Ch. 7 - Factoring of accounts receivable with recourse...Ch. 7 - Concepts; terminology LO71 through LO78 Listed...Ch. 7 - Prob. 7.29ECh. 7 - Prob. 7.36ECh. 7 - Prob. 7.1PCh. 7 - Prob. 7.2PCh. 7 - Prob. 7.3PCh. 7 - Prob. 7.5PCh. 7 - Prob. 7.1DMPCh. 7 - Real World Case 74 Sales returns; Green Mountain...Ch. 7 - Ethics Case 75 Uncollectible accounts LO75 You...Ch. 7 - Prob. 7.5DMPCh. 7 - Prob. 7.6DMPCh. 7 - Prob. 7.9DMP
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- Q 26 Question 26 Assuming that the Rector Company uses the Balance Sheet Approach to estimate bad debt expense. Based on aging of accounts receivable management estimates that the desired balance in the allowance for uncollectible accounts should be $18,000. The balance in the allowance for uncollectible accounts before the adjusting entry is made is $1,000 CREDIT balance. The entry to record bad debt expense would be: Select one: a. Dr. Allowance for Uncollectible Accounts 17,000 and Cr. Accounts Receivable 17,000 b. Bad Debt Expense 17,000 and Cr. Allowance for Uncollectible Accounts 17,000 c. Dr. Allowance for Uncollectible Accounts 18,000 and Cr. Accounts Receivable 18,000 d. Dr. Bad Debt Expense 18,000 and Cr. Allowance for Uncollectible Accounts 18,000arrow_forwardAging of receivables; estimating allowance for doubtful accounts Trophy Fish Company supplies flies and fishing gear to sporting goods stores and outfitters throughout the western United States. The accounts receivable clerk for Trophy Fish prepared the following partially completed aging of receivables schedule as of the end of business on December 31, 20Y4: The following accounts were unintentionally omitted from the aging schedule. Assume all due dates are for the current year except for Wolfe Sports, which is due in the next year. Customer Due Date Balance Adams Sports Flies May 22 5,000 Blue Dun Flies Oct. 10 4,900 Cicada Fish Co. Sept. 29 8,400 Deschutes Sports Oct. 20 7,000 Green River Sports Nov. 7 3,500 Smith River Co. Nov. 28 2,400 Western Trout Company Dec. 7 6,800 Wolfe Sports Jan. 20 4,400 Trophy Fish has a past history of uncollectible accounts by age category, as follows: Age Class Percent Uncollectible Not past due 1% 1-30 days past due 2 31-60 days past due 10 61-90 days past due 30 91-120 days past due 40 Over 120 days past due 80 Instructions 1. Determine the number of days past due for each of the preceding accounts. 2. Complete the aging of receivables schedule by adding the omitted accounts to the bottom of the schedule and updating the totals. 3. Estimate the allowance for doubtful accounts, based on the aging of receivables schedule. 4. Assume that the allowance for doubtful accounts for Trophy Fish Company has a debit balance of 3,600 before adjustment on December 31. Journalize the adjusting entry for uncollectible accounts. 5. Assume that the adjusting entry in (4) was inadvertently omitted, how would the omission affect the balance sheet and income statement?arrow_forwardAging of receivables; estimating allowance for doubtful accounts Wig Creations Company supplies wigs and hair care products to beauty salons throughout Texas and the Southwest. The accounts receivable clerk for Wig Creations prepared the following partially completed aging of receivables schedule as of the end of business on December 31, 20Y7: The following accounts were unintentionally omitted from the aging schedule. Assume all due dates are for the current year except for Visions Hair Nail, which is due in the next year. Customer Due Date Balance Arcade Beauty Aug. 17 10,000 Creative Images Oct. 30 8,500 Excel Hair Products July 3 7,500 First Class Hair Care Sept. 8 6,600 Golden Images Nov. 23 3,600 Oh That Hair Nov. 29 1,400 One Stop Hair Designs Dec. 7 4,000 Visions Hair Nail Jan. 11 9,000 Wig Creations has a past history of uncollectible accounts by age category, as follows Age Class Percent Uncollectible Not past due 1% 1-30 days past due 4 31-60 days past due 16 61 -90 days past due 25 91-120 days past due 40 Over 120 days past due 80 Instructions 1. Determine the number of days past due for each of the preceding accounts. 2. Complete the aging of receivables schedule by adding the omitted accounts to the bottom of the schedule and updating the totals. 3. Estimate the allowance for doubtful accounts, based on the aging of receivables schedule. 4. Assume that the allowance for doubtful accounts for Wig Creations has a credit balance of 7,375 before adjustment on December 31. Journalize the adjustment for uncollectible accounts. 5. Assume that the adjusting entry in (4) was inadvertently omitted, how would the omission affect the balance sheet and income statement?arrow_forward
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