Question
Allowance Method of Accounting for Bad DebtsComparison of the Two Approaches Kandel Company had the following data available for 2017 (before making any adjustments): Accounts
Allowance Method of Accounting for Bad DebtsComparison of the Two Approaches
Kandel Company had the following data available for 2017 (before making any adjustments):
| Accounts receivable, 12/31/17 | $320,100 | |
| Allowance for doubtful accounts | 2,600 | |
| Net credit sales, 2017 | 834,000 |
Required:
1. Identify and analyze the adjustment to recognize bad debts under the following assumptions: (a) bad debts expense is expected to be 2% of net credit sales for the year.
| Activity | Operating |
| Accounts | Allowance for Doubtful Accounts Increase, Bad Debts Expense Increase |
| Statement(s) | Balance Sheet and Income Statement |
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.
| Balance Sheet | Income Statement | |||||||||||||
| Stockholders' | Net | |||||||||||||
| Assets | = | Liabilities | + | Equity | Revenues | Expenses | = | Income | ||||||
| Allowance for Doubtful Accounts | fill in the blank | No Entry | fill in the blank | fill in the blank | No Entry | fill in the blank | Bad Debts Expense | fill in the blank | fill in the blank c9da84030f87049_10 | |||||
Feedback
Partially correct
(b) Kandel expects it will not be able to collect 6% of the balance in accounts receivable at year-end.
| Activity | Operating |
| Accounts | Allowance for Doubtful Accounts Increase, Bad Debts Expense Increase |
| Statement(s) | Balance Sheet and Income Statement |
Feedback
In applying the percentage of accounts receivable to estimate bad debts expense, the balance already in the allowance account is used and the focus is on the balance sheet. Multiply uncollectible percentage by the ending balance in accounts receivable. The amount determined uncollectible will be the new ending balance for the Allowance for Doubtful Accounts. The change in the Allowance account is the bad debt 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, 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.
| Balance Sheet | Income Statement | |||||||||||||
| Stockholders' | Net | |||||||||||||
| Assets | = | Liabilities | + | Equity | Revenues | Expenses | = | Income | ||||||
| Allowance for Doubtful Accounts | fill in the blank | No Entry | fill in the blank | fill in the blank | No Entry | fill in the blank | Bad Debts Expense | fill in the blank | fill in the blank 349761ff4057fef_10 | |||||
Feedback
Partially correct
2. Assume instead that the balance in the allowance account is a negative $2,600. How will this affect your answers to part (1)?
(a) bad debts expense is expected to be 2% of net credit sales for the year.
| Activity | Operating |
| Accounts | Allowance for Doubtful Accounts Increase, Bad Debts Expense Increase |
| Statement(s) | Balance Sheet and Income Statement |
Feedback
Under the percentage of credit sales approach the emphasis is on the bad debts expense and income statement. The balance in the allowance account before adjustment is ignored.
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.
| Balance Sheet | Income Statement | |||||||||||||
| Stockholders' | Net | |||||||||||||
| Assets | = | Liabilities | + | Equity | Revenues | Expenses | = | Income | ||||||
| Allowance for Doubtful Accounts | fill in the blank | No Entry | fill in the blank | fill in the blank | No Entry | fill in the blank | Bad Debts Expense | fill in the blank | fill in the blank d8eb3808cf8f01c_10 | |||||
(b) Kandel expects it will not be able to collect 6% of the balance in accounts receivable at year-end.
| Activity | Operating |
| Accounts | Allowance for Doubtful Accounts Increase, Bad Debts Expense Increase |
| Statement(s) | Balance Sheet and Income Statement |
The amount determined uncollectible will be the new ending balance for the Allowance for Doubtful Accounts. The change in the Allowance account is the bad debt 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, 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.
| Balance Sheet | Income Statement | |||||||||||||
| Stockholders' | Net | |||||||||||||
| Assets | = | Liabilities | + | Equity | Revenues | Expenses | = | Income | ||||||
| Allowance for Doubtful Accounts | fill in the blank | No Entry | fill in the blank | fill in the blank | No Entry | fill in the blank | Bad Debts Expense | fill in the blank | fill in the blank 4938dafd3f82f93_10 | |||||
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Investing Amid Low Expected Returns Making The Most When Markets Offer The Least
Authors: Antti Ilmanen
1st Edition
1119860199, 978-1119860198
