First, review in detail the "Review Problem and Solution" on pages 348-350 in your text and make sure you know where every number comes from. Then, download the Excel template below and save it to your computer. CompleteProblem 7-1, "Comparison of the Direct Write-Off and Allowance Methods of Accounting for Bad Debts"on pages 354-355in your text then submitin an Excel document.

Week 4 Excel Template

ExercisesExercise7-1.Comparison of the Direct Write-Off and Allowance Methods of Accounting for Bad Debts

LO1Example 7-1,7-2,7-3In its first year of business, Rideaway Bikes has net income of $145,000, exclusive of any adjustment for bad debts expense. The president of the company has asked you to calculate net income under each of two alternatives of accounting for bad debts: the direct write-off method and the allowance method. The president would like to use the method that will result in the higher net income. So far, no adjustments have been made to write off uncollectible accounts or to estimate bad debts. The relevant data are as follows:

Write-offs of uncollectible accounts during the year$10,500Net credit sales$650,000Estimated percentage of net credit sales that will be uncollectible2%

Required

• Compute net income under each of the two alternatives. Does Rideaway have a choice as to which method to use? If so, should it base its choice on which method will result in the higher net income? (Ignore income taxes.) Explain.

General Instructions 1. The following worksheet may be used to complete the exercise/problem. You may need to refer to your textbook for additional information. 2. The blue cells are for data entry. Enter text in the T cells, formulas in the F cells, and dollars or numbers in the $ cells. 3. Submit your document to the Dropbox by Sunday, 11:59PM (Mountain). PROBLEM 7-1 ALLOWANCE METHOD FOR ACCOUNTING FOR BAD DEBTS 1) T T T T T T T T T T 2) a. T T T b. T T T 3) What is the net realizable value of accounts receivable on December 31, 2016, under each assumption in part a. The net realizable value of accounts receivable on December 31, 2016, is: Accounts receivable, December 31 [from part (2b)] Allowance for doubtful accounts, December 31 Net realizable value, December 31 b. The net realizable value of accounts receivable on December 31, 2016, is: Accounts receivable, December 31 [from part (2b)] Allowance for doubtful accounts, December 31 Net realizable value, December 31 4) What effect does the recognition of bad debts expense have on the net realizable value? What effect does t COUNTING FOR BAD DEBTS $ $ $ $ $ $ $ $ $ $ $ 2016, under each assumption in part (2)? $ $ $ F $ $ $ F realizable value? What effect does the write-off of accounts have on the net realizable value