Allowance Method for Accounting for Bad Debts At the beginning of 2017, EZ Tech Company's Accounts Receivable balance was $223,000, and the balance in Adlowance for Doubtful Accounts was $3,800. EZ Tech's sales in 2017 were $1,670,000, 90% of which were on credit. Collections on account during the year were $1,070,000. The company wrote off $5,000 of uncollectible accounts during the year Required: 1. Identity and analyze the sales during 2017, Activity Operating Accounts Cash Increase, Accounts Receivable Increase, Sales Revenue Increase Statement(s) Balance Sheet and Income Statement Feedback Check 1) Determine activity (15) Financing activities are transactions (other than payment of Interest) involving borrowing from creditors or repaying creditors. This also includes transactions with the company's owners. Businesses borrow money or raise money from selling of their stock 1b) Investing activities are obtaining money by building up operations or purchasing investment products such as stocks, bonds and annuities 1c) Operating activities are the sale of products and/or services, and the costs incurred to operate a business. 2) Determine financial statement accounts affected, balance sheet or Income statement. Determine accounts and amount of increases/decreases 3) Balance Sheet accounts: Assets - Liabilities + Stockholders Equity Income Statement accounts: Revenues - Expenses = Net Income (Equations must stay in balance) Checked Previous Next How does this entry affect the accounting equation? Ita financial statement tern is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, kes decrease, be sure to enter the answer with a minus sign Balance Sheet Stockholders' Assets Llabilities Equity Revenues Cash 167,000 No Entry No Entry 150,300 Accounts Receivable No Entry No Entry Activity Identity and analyze the transactions related to the collections of cash during 2017 Operating Cash Increase, Accounts Receivable Decrease Statement(s) Balance Sheet only Accounts Feedba Check My Wort 1) Determine activity 13) Financing activities are transactions (other than payment of interest) involving borrowing from creditors or repaying creditors. This also includes transactions with the company's owners Businesses borrow money or raise money from selling of the stock 1b) Investing activities are obtaining money by building up operations or purchasing investment products such as stocks, bonds and annuities 10) Operating activities are the sale of products and/or services, and the costs incurred to operate a business Previous Next > Check My Work Emainstructor Save and to submit Assignment for Grading How does this entry affect the accounting equation? Ita 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, decrease be sure to enter the answer with a minus sign Balance Sheet Stockholders Assets Liabilities Equity Cash 107,000 X No Entry 0 No Entry Accounts Receivable -107,000 X No Entry No Entry Revenues 0 Check out Partially correct Identity and analyze the transactions related to the write-offs of accounts receivable during 2017 Activity Operating Comesi Accounts Allowance for Doubtful Accounts Decrease, Accounts Receivable Decrease Statement(s) Balance sheet only Che Work 2. Identity and analyze the adjustments to recognize bad debts assuming that (a) bad debts expense is 24 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 Operating Allowance for Doubtful Accounts Increase, Bad Debts Expense Increase Statement(s) Balance Sheet and Income Statement Accounts Chay 1) Determine activity 10) Financing activities are transactions (other than payment of interest involving borrowing from creditors or repaying creditors. This also includes transactions with the company's owners. Businesses borrow money or raise money from selling of their stock 10) Investing activities are obtaining money by boliloing up operations of purchasing investment products such as stocks, bonds and annuites 1c) Operating activities are the sale of products and/or services, and the costs incurred to operate a business 2)Determine financial statement accounts affected, balance sheet or income statement. Determine accounts and amount of increases/decreases, 3) Balance Sheet accoupls: Assets Liabilities - Stockholders' Bouity Income Statement accounts: Revenues - Expenses Netto.com (Equations must stay in balance) 4) Allowance method estimates bad debts on the basis of other the net credit sales of the period or the accounts receivable at the end of the period 5) Bad Debts Expense recognizes the cost associated with the reduction is aset ve Accounts Recevable. A contrast account is used to reduce the asset to its net realizable value. This is accomplished by creating an allowance account. Allowance for Doubtful Accounts. This is a contra account and causes total assets to decrease Under the percentage of net credit sales approach, the emphasis is an expense. The balance in me allowance account before adjustment is ignored. Previous Next sole by hetes amount for expense. 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, le, 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 Stockholders' Assets Liabilities Equity Revenues Allowance for Doubtful Accounts -30,060 No Entry No Entry b. Identity and analyze the adjustments to recognize bad debts assuming that amounts expected to be uncollectible are 7 of the year and accounts receivable, Activity Operating Accounts Allowance for Doubtful Accounts Increase, Bad Debts Expense Increase Statement(s) Balance Sheet and Income Statement 1) Determine activity 10) Financing activities are transactions (other than payment of interest) involving borrowing from creditors or repaying creditors. This also includes transactions with the company's owners Businesses borrow money or mio money from selling of their stock How does this entry affect the accounting equation? ut 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, te, a decrease, be sure to enter the answer with a minus sign. Remember: Ir 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 Stockholders Assets Equity Allowance for Doubtful Accounts No Entry Liabilities Revenues -48,120 No Entry 3. What is the net realizable value of accounts receivable on December 31, 2017, under each assumption in part (?)? Using the percentage of sales approach, the net realizable value of the receivables is? 628,140 x Using the percentage of year and receivables approach, the net reliable value of the receivables is? 610,080 X 4. The recognition of bad debts expense reduces the net realizable value by the amount recorded in bad debts expense and the allowance for doubtful accounts The write-off of accounts increases the net realizable value Chat Wor The net realizable value of accounts receivable is the carrying value of the receivables. Allowance Method for Accounting for Bad Debts At the beginning of 2017, EZ Tech Company's Accounts Receivable balance was $223,000, and the balance in Adlowance for Doubtful Accounts was $3,800. EZ Tech's sales in 2017 were $1,670,000, 90% of which were on credit. Collections on account during the year were $1,070,000. The company wrote off $5,000 of uncollectible accounts during the year Required: 1. Identity and analyze the sales during 2017, Activity Operating Accounts Cash Increase, Accounts Receivable Increase, Sales Revenue Increase Statement(s) Balance Sheet and Income Statement Feedback Check 1) Determine activity (15) Financing activities are transactions (other than payment of Interest) involving borrowing from creditors or repaying creditors. This also includes transactions with the company's owners. Businesses borrow money or raise money from selling of their stock 1b) Investing activities are obtaining money by building up operations or purchasing investment products such as stocks, bonds and annuities 1c) Operating activities are the sale of products and/or services, and the costs incurred to operate a business. 2) Determine financial statement accounts affected, balance sheet or Income statement. Determine accounts and amount of increases/decreases 3) Balance Sheet accounts: Assets - Liabilities + Stockholders Equity Income Statement accounts: Revenues - Expenses = Net Income (Equations must stay in balance) Checked Previous Next How does this entry affect the accounting equation? Ita financial statement tern is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, kes decrease, be sure to enter the answer with a minus sign Balance Sheet Stockholders' Assets Llabilities Equity Revenues Cash 167,000 No Entry No Entry 150,300 Accounts Receivable No Entry No Entry Activity Identity and analyze the transactions related to the collections of cash during 2017 Operating Cash Increase, Accounts Receivable Decrease Statement(s) Balance Sheet only Accounts Feedba Check My Wort 1) Determine activity 13) Financing activities are transactions (other than payment of interest) involving borrowing from creditors or repaying creditors. This also includes transactions with the company's owners Businesses borrow money or raise money from selling of the stock 1b) Investing activities are obtaining money by building up operations or purchasing investment products such as stocks, bonds and annuities 10) Operating activities are the sale of products and/or services, and the costs incurred to operate a business Previous Next > Check My Work Emainstructor Save and to submit Assignment for Grading How does this entry affect the accounting equation? Ita 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, decrease be sure to enter the answer with a minus sign Balance Sheet Stockholders Assets Liabilities Equity Cash 107,000 X No Entry 0 No Entry Accounts Receivable -107,000 X No Entry No Entry Revenues 0 Check out Partially correct Identity and analyze the transactions related to the write-offs of accounts receivable during 2017 Activity Operating Comesi Accounts Allowance for Doubtful Accounts Decrease, Accounts Receivable Decrease Statement(s) Balance sheet only Che Work 2. Identity and analyze the adjustments to recognize bad debts assuming that (a) bad debts expense is 24 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 Operating Allowance for Doubtful Accounts Increase, Bad Debts Expense Increase Statement(s) Balance Sheet and Income Statement Accounts Chay 1) Determine activity 10) Financing activities are transactions (other than payment of interest involving borrowing from creditors or repaying creditors. This also includes transactions with the company's owners. Businesses borrow money or raise money from selling of their stock 10) Investing activities are obtaining money by boliloing up operations of purchasing investment products such as stocks, bonds and annuites 1c) Operating activities are the sale of products and/or services, and the costs incurred to operate a business 2)Determine financial statement accounts affected, balance sheet or income statement. Determine accounts and amount of increases/decreases, 3) Balance Sheet accoupls: Assets Liabilities - Stockholders' Bouity Income Statement accounts: Revenues - Expenses Netto.com (Equations must stay in balance) 4) Allowance method estimates bad debts on the basis of other the net credit sales of the period or the accounts receivable at the end of the period 5) Bad Debts Expense recognizes the cost associated with the reduction is aset ve Accounts Recevable. A contrast account is used to reduce the asset to its net realizable value. This is accomplished by creating an allowance account. Allowance for Doubtful Accounts. This is a contra account and causes total assets to decrease Under the percentage of net credit sales approach, the emphasis is an expense. The balance in me allowance account before adjustment is ignored. Previous Next sole by hetes amount for expense. 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, le, 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 Stockholders' Assets Liabilities Equity Revenues Allowance for Doubtful Accounts -30,060 No Entry No Entry b. Identity and analyze the adjustments to recognize bad debts assuming that amounts expected to be uncollectible are 7 of the year and accounts receivable, Activity Operating Accounts Allowance for Doubtful Accounts Increase, Bad Debts Expense Increase Statement(s) Balance Sheet and Income Statement 1) Determine activity 10) Financing activities are transactions (other than payment of interest) involving borrowing from creditors or repaying creditors. This also includes transactions with the company's owners Businesses borrow money or mio money from selling of their stock How does this entry affect the accounting equation? ut 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, te, a decrease, be sure to enter the answer with a minus sign. Remember: Ir 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 Stockholders Assets Equity Allowance for Doubtful Accounts No Entry Liabilities Revenues -48,120 No Entry 3. What is the net realizable value of accounts receivable on December 31, 2017, under each assumption in part (?)? Using the percentage of sales approach, the net realizable value of the receivables is? 628,140 x Using the percentage of year and receivables approach, the net reliable value of the receivables is? 610,080 X 4. The recognition of bad debts expense reduces the net realizable value by the amount recorded in bad debts expense and the allowance for doubtful accounts The write-off of accounts increases the net realizable value Chat Wor The net realizable value of accounts receivable is the carrying value of the receivables