Chapter 7 Homework (Spring 2017)

1) The Ethan Company provides you with the following information on December 31, 2015 as it prepares to close its books for the year

Accounts Receivable Balance (before write offs): $7,891,500

Allowance for Doubtful Accounts Balance (before write offs): 212,000

Accounts deemed to be uncollectible: 230,000

Bad Debt rate based on % of AR balance: 4.0%

Net Credit Sales 2015:$42,000,000

Bad Debt Rate Based on % of Credit Sales:1%

Required:

1) Assuming Ethan Co uses the balance sheet (AR balance) approach:

a. Record the write off of uncollectible accounts.

b. What is the new allowance for doubtful accounts balance after all adjustments.

c. What is the bad debt expense, record the entry.

d. What is the new Net Realizable Value of the receivable on the balance sheet.

2) Repeat the exercise assuming Ethan Co uses the income statement approach.

2) Morgan Company provides you with an aged accounts receivable balance as follows:

Days Outstanding $ AmountEst % Uncollectible

0 -302,350,0003%

31-601,110,0007%

61-90 750,0008%

91-120 300,00010%

120+ 62,000100%

4,572,000

The current allowance for doubtful accounts balance before write-offs is $91,000.

Required:

3) Assuming Ethan Co uses the balance sheet (AR balance) approach:

a. Record the write off of uncollectible accounts.

b. What is the new allowance for doubtful accounts balance after all adjustments.

c. What is the bad debt expense, record the entry.

What is the new Net Realizable Value of the receivable on the balance sheet.