At the beginning of 2017, EZ Tech Company's Accounts Receivable balance was $143,000, and the balance in Allowance for Doubtful Accounts was $2,450. EZ Tech's sales in 2017 were $1,070,000, 80% of which were on credit. Collections on account during the year were $690,000. The company wrote off $4,000 of uncollectible accounts during the year. Required: 1. Identify and analyze the sales during 2017. Activity Operating Accounts Cash Increase, Accounts Receivable Increase, Sales Revenue 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. 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 Operating Accounts Cash Increase, Accounts Receivable Decrease Statement(s) Balance Sheet only 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 Operating Accounts Allowance for Doubtful Accounts Decrease, Accounts Receivable Decrease Statement(s) Balance Sheet only 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 4% 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 4% of credit sales. 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. 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 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. 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 reduces the net realizable value by the amount recorded in bad debts expense and the allowance for doubtful accounts . The write-off of accounts has no effect on the net realizable value.
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
At the beginning of 2017, EZ Tech Company's
Required:
1. Identify and analyze the sales during 2017.
| Activity | Operating |
| Accounts | Cash Increase, Accounts Receivable Increase, Sales Revenue Increase |
| Statement(s) | Balance Sheet and Income Statement |
How does this entry affect the
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 | Operating |
| Accounts | Cash Increase, Accounts Receivable Decrease |
| Statement(s) | Balance Sheet only |
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 | Operating |
| Accounts | Allowance for Doubtful Accounts Decrease, Accounts Receivable Decrease |
| Statement(s) | Balance Sheet only |
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
a. Identify and analyze the adjustments to recognize bad debts assuming that bad debts expense is 4% of credit sales.
| 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. 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 | Operating |
| Accounts | Allowance for Doubtful Accounts Increase, Bad Debts Expense Increase |
| Statement(s) | Balance Sheet and Income Statement |
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 reduces the net realizable value by the amount recorded in bad debts expense and the allowance for doubtful accounts . The write-off of accounts has no effect on the net realizable value.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 10 images
