Allowance Method for Accounting for Bad Debts

At the beginning of 2017, EZ Tech Company's Accounts Receivable balance was $147,000, and the balance in Allowance for Doubtful Accounts was $2,500. EZ Tech's sales in 2017 were $1,100,000, 70% of which were on credit. Collections on account during the year were $710,000. The company wrote off $4,000 of uncollectible accounts during the year.

Required:

1. Identify and analyze the sales during 2017.

Activity
Accounts
Statement(s)

How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

Identify and analyze the transactions related to the collections of cash during 2017.

Activity
Accounts
Statement(s)

How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

Identify and analyze the transactions related to the write-offs of accounts receivable during 2017.

Activity
Accounts
Statement(s)

How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item. If a contra account is decreased, it will have the effect of increasing the corresponding financial statement item.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

2. Identify and analyze the adjustments to recognize bad debts assuming that (a) bad debts expense is 2% of credit sales and (b) amounts expected to be uncollectible are 7% of the year-end accounts receivable.

a. Identify and analyze the adjustments to recognize bad debts assuming that bad debts expense is 2% of credit sales.

Activity
Accounts
Statement(s)

How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item. If a contra account is decreased, it will have the effect of increasing the corresponding financial statement item.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

b. Identify and analyze the adjustments to recognize bad debts assuming that amounts expected to be uncollectible are 7% of the year-end accounts receivable.

Activity
Accounts
Statement(s)

How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item. If a contra account is decreased, it will have the effect of increasing the corresponding financial statement item.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

3. What is the net realizable value of accounts receivable on December 31, 2017, under each assumption in part (2)?

Using the percentage of sales approach, the net realizable value of the receivables is? $

Using the percentage of year-end receivables approach, the net realizable value of the receivables is? $

4. The recognition of bad debts expense_________ the net realizable value by the amount recorded in bad debts expense and the_________.The write-off of accounts__________ the net realizable value.