Financial And Managerial Accounting
15th Edition
ISBN: 9781337902663
Author: WARREN, Carl S.
Publisher: Cengage Learning,
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Chapter 8, Problem 4TIF
To determine
Write a memo to Person TH, CEO of Company X explaining the allowance method and how this information is reported in the financial statements.
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As the accountant for Pure-Air Distributing, you attend a sales managers’ meeting devoted to a discussion of credit policies. At the meeting, you report that bad debts expense is estimated to be $59,000 and accounts receivable at year-end amount to $1,750,000 less a $43,000 allowance for doubtful accounts. Sid Omar, a sales manager, expresses confusion over why bad debts expense and the allowance for doubtful accounts are different amounts. Write a one-page memorandum to him explaining why a difference in bad debts expense and the allowance for doubtful accounts is not unusual. The company estimates bad debts expense as 2% of sales.
On January 1, Xtreme Co. began offering credit with terms of n/30. Uncollectible accounts
are estimated to be 1% of credit sales, which is the average for the industry. The CEO,
Todd Hurley, has no background in accounting and is struggling to understand the
allowance method.
Write a brief memo to Todd, explaining the allowance method and how this
information is reported in the financial statements.
CP 9-5
Estimate uncollectible accounts
For several years, Xtreme Co.'s sales have been on a "cash only" basis. On January 1, 20Y4,
however, Xtreme Co. began offering credit on terms of n/30. The amount of the adjusting
entry to record the estimated uncollectible receivables at the end of each year has been
2 of 1% of credit sales, which is the rate reported as the average for the industry. Credit
sales and the year-end credit balances in Allowance for Doubtful Accounts for the past
four years are as follows:
Allowance for
Doubtful Accounts
Credit Sales
Year
$ 5,000
$4,000,000
20Y4
8,250…
The chief accountant for Bramble Corporation provides you with the following list of accounts receivable written off in the current
year.
Date
March 31
June 30
September 30
December 31
Customer
E. L. Masters Company
Stephen Crane Associates
Amy Lowell's Dress Shop
R. Frost, Inc.
Amount
$7,500
6,600
6.900
Net income would be $
9,100
Bramble follows the policy of debiting Bad Debt Expense as accounts are written off. The chief accountant maintains that this
procedure is appropriate for financial statement purposes because the Internal Revenue Service will not accept other methods for
recognizing bad debts.
All of Bramble's sales are on a 30-day credit basis. Sales for the current year total $2,200,000. The balance in Accounts Receivable at
year-end is $81,100 and an analysis of customer risk and charge-off experience indicates that 12% of receivables will be uncollectible
(assume a zero balance in the allowance).
(b) By what amount would income before taxes differ if bad debt expense was…
Chapter 8 Solutions
Financial And Managerial Accounting
Ch. 8 - What are the three classifications of receivables?Ch. 8 - Dans Hardware is a small hardware store in the...Ch. 8 - What kind of an account (asset, liability, etc.)...Ch. 8 - After the accounts are adjusted and closed at the...Ch. 8 - A firm has consistently adjusted its allowance...Ch. 8 - Which of the two methods of estimating...Ch. 8 - Neptune Company issued a note receivable to...Ch. 8 - If a note provides for payment of principal of...Ch. 8 - Prob. 9DQCh. 8 - Prob. 10DQ
Ch. 8 - Direct write-off method Journalize the following...Ch. 8 - Allowance method Journalize the following...Ch. 8 - Percent of sales method At the end of the current...Ch. 8 - Analysis of receivables method At the end of the...Ch. 8 - Note receivable Prefix Supply Company received a...Ch. 8 - Accounts receivable turnover and days sales in...Ch. 8 - Prob. 1ECh. 8 - Prob. 2ECh. 8 - Entries for uncollectible accounts, using direct...Ch. 8 - Entries for uncollectible receivables, using...Ch. 8 - Entries to write off accounts receivable Creative...Ch. 8 - Providing for doubtful accounts At the end of the...Ch. 8 - Number of days past due Toot Auto Supply...Ch. 8 - Aging of receivables schedule The accounts...Ch. 8 - Estimating allowance for doubtful accounts Evers...Ch. 8 - Adjustment for uncollectible accounts Using data...Ch. 8 - Estimating doubtful accounts Outlaw Bike Co. is a...Ch. 8 - Entry for uncollectible accounts Using the data in...Ch. 8 - Entries for bad debt expense under the direct...Ch. 8 - Entries for bad debt expense under the direct...Ch. 8 - Effect of doubtful accounts on net income During...Ch. 8 - Effect of doubtful accounts on net income Using...Ch. 8 - Entries for bad debt expense under the direct...Ch. 8 - Entries for bad debt expense under the direct...Ch. 8 - Determine due date and interest on notes Determine...Ch. 8 - Entries for notes receivable Valley Designs issued...Ch. 8 - Entries for notes receivable The series of five...Ch. 8 - Entries for notes receivable, including year-end...Ch. 8 - Entries for receipt and dishonor of note...Ch. 8 - Entries for receipt and dishonor of notes...Ch. 8 - Prob. 25ECh. 8 - Allowance method entries The following...Ch. 8 - Aging of receivables; estimating allowance for...Ch. 8 - Compare two methods of accounting for...Ch. 8 - Details of notes receivable and related entries...Ch. 8 - Notes receivable entries The following data relate...Ch. 8 - Sales and notes receivable transactions The...Ch. 8 - Allowance method entries The following...Ch. 8 - Aging of receivables; estimating allowance for...Ch. 8 - Compare two methods of accounting for...Ch. 8 - Prob. 4PBCh. 8 - Prob. 5PBCh. 8 - Prob. 6PBCh. 8 - Prob. 1MADCh. 8 - Analyze Ralph Lauren Ralph Lauren Corporation (RL)...Ch. 8 - Analyze L Brands L Brands, Inc. (LB) sells womens...Ch. 8 - Compare Ralph Lauren and L Brands Use the data in...Ch. 8 - Prob. 5MADCh. 8 - Prob. 1TIFCh. 8 - Interest computations Bev Wynn, vice president of...Ch. 8 - Prob. 4TIFCh. 8 - Allowance for doubtful accounts For several years,...
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- On June 30, Oscar Inc.s bookkeeper is preparing to close the books for the month. The accounts receivable control total shows a balance of $2,820.76, but the accounts receivable subsidiary ledger shows total account balances of $2,220.76. The accounts receivable subsidiary ledger is shown here. Can you help find the mistake?arrow_forwardOlena Mirrors records bad debt using the allowance, balance sheet method. They recorded $343,160 in accounts receivable for the year and $577,930 in credit sales. The uncollectible percentage is 4.4%. On June 11, Olena Mirrors identifies one uncollectible account from Nadia White in the amount of $4,265. On September 14, Nadia Chernoff unexpectedly pays $1,732 toward her account. Record journal entries for the following. A. Year-end adjusting entry for 2017 bad debt B. June 11, 2018 identification entry C. Entry for payment on September 14, 2018arrow_forwardTonis Tech Shop has total credit sales for the year of 170,000 and estimates that 3% of its credit sales will be uncollectible. Allowance for Doubtful Accounts has a credit balance of 275. Prepare the adjusting entry at year-end for the estimated bad debt expense. (a) Based on an aging of its accounts receivable, Kyles Cyclery estimates that 3,200 of its year-end accounts receivable will be uncollectible. Allowance for Doubtful Accounts has a debit balance of 280 at year-end. Prepare the adjusting entry at year-end for the estimated uncollectible accounts.arrow_forward
- Casebolt Company wrote off the following accounts receivable as uncollectible for the first year of its operations ending December 31: a. Journalize the write-offs under the direct write-off method. b. Journalize the write-offs under the allowance method. Also, journalize the adjusting entry for uncollectible accounts. The company recorded 5,250,000 of credit sales during the year. Based on past history and industry averages, % of credit sales are expected to be uncollectible. c. How much higher (lower) would Casebolt Companys net income have been under the direct write-off method than under the allowance method?arrow_forwardOn January 1, Wei company begins the accounting period with a $46,000 credit balance in Allowance for Doubtful Accounts. a. On February 1, the company determined that $10,000 in customer accounts was uncollectible; specifically, $2,500 for Oakley Co. and $7,500 for Brookes Co. Prepare the journal entry to write off those two accounts. b. On June 5, the company unexpectedly received a $2,500 payment on a customer account, Oakley Company, that had previously been written off in part a. Prepare the entries to reinstate the account and record the cash received. View transaction list Journal entry worksheet 1 2 On February 1, the company determined that $10,000 in customer accounts was uncollectible; specifically, $2,500 for Oakley Co. and $7,500 for Brookes Co. Prepare the journal entry to write off those two accounts. Date Feb 01 3 Note: Enter debits before credits. Record entry General Journal Clear entry Debit Credit View general journalarrow_forwardProviding for Doubtful Accounts at the end of the year, the accounts receivable account has a debit balance of $851,000 and sales for the year total $9,650,000. A.the allowance account before adjustment has a credit balance of $11,500. Bad debt expense is estimated at 1/2 of 1% of sales. B.the allowance account before adjustment has a credit balance of $11,500. An agent of the accounts in the customer's Ledger indicates estimated doubtful accounts of $36,800. C. The allowance account before adjustment has a debit balance of $5,200. Bad Debt is estimated at 3/4 of 1% of sales. D.the allowance account before adjustment has a debit balance of $5,200. An agent of the accounts in the customer Ledger indicates estimated doubtful accounts of $43,200. determine the amount of the adjusted entry to provide for doubtful accounts under each of the assumptions(a through d) listed above. A.$ ____ B.$ _____ C.$ _____ D.$ _______arrow_forward
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- As the accountant for Clean Air Controls, you attend a meeting with the sales managers to discuss credit policies. At the meeting, you report that bad debts expense for the year is estimated to be $85,000 and account receivables at year end is $1,500,000 less a $57,000 allowance for doubtful accounts. Arthur Levitt, a sales manager, asks why bad debts expense and the allowance are not the same amount. Required 1. Write a professional email explaining this concept to Arthur. The company estimates bad debts expense as 3% of sales.arrow_forwardOn January 1, Wei Company begins the accounting period with a $34,000 credit balance in Allowance for Doubtful Accounts. a. On February 1, the company determined that $7,600 in customer accounts was uncollectible; specifically, $1,300 for Oakley Company and $6,300 for Brookes Company Prepare the journal entry to write off those two accounts. b. On June 5, the company unexpectedly received a $1,300 payment on a customer account, Oakley Company, that had previously been written off in part a. Prepare the entries to reinstate the account and record the cash received. View transaction list Journal entry worksheet 1 2 On February 1, the company determined that $7,600 in customer accounts was uncollectible; specifically, $1,300 for Oakley Company and $6,300 for Brookes Company. Prepare the journal entry to write off those two accounts. Date February 01 3 Note: Enter debits before credits. Record entry General Journal Clear entry Debit Credit View general journalarrow_forwardDuring its first year of operations, Crane Company had credit sales of $3,064,300; $655,000 remained uncollected at year-end. The credit manager estimates that $36,900 of these receivables will become uncollectible. 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 Debit Credit List of Accounts Prepare the current assets section of the balance sheet for Crane Company. Assume that in addition to the receivables it has cash of $94,400, inventory of $135,200, and prepaid insurance of $8,500. (List Current Assets in order of liquidity.) CRANE COMPANY Balance Sheet (Partial) 24 %24 %24arrow_forward
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