Egida Company started its business on January 1, 2021. After considering the collection experience of other entities in the industry, Egida established an allowance for bad debts estimated at 5% of credit sales. Outstanding accounts receivable recorded on December 31, 2021 totaled P115,000 while the allowance for bad debts account had a credit balance of P12,500 after recording estimated doubtful accounts expense for December and after writing off P2,500 of uncollectible accounts. Further analysis of the entity's accounts showed that merchandise purchased in 2011 amounted to P450,000 and ending merchandise inventory was P75,000. Goods were sold at 40% above cost. Sales on account amounted to 80% of total sales. Total collections from customers, on the other hand, excluding cash sales, amounted to P300,000. 31. The net realizable value of the accounts receivable at December 31, 2021 is overstated (understated) by:

Egida Company started its business on January 1, 2021. After considering the collection experience of other entities in the industry, Egida established an allowance for bad debts estimated at 5% of credit sales. Outstanding accounts receivable recorded on December 31, 2021 totaled P115,000 while the allowance for bad debts account had a credit balance of P12,500 after recording estimated doubtful accounts expense for December and after writing off P2,500 of uncollectible accounts. Further analysis of the entity's accounts showed that merchandise purchased in 2011 amounted to P450,000 and ending merchandise inventory was P75,000. Goods were sold at 40% above cost. Sales on account amounted to 80% of total sales. Total collections from customers, on the other hand, excluding cash sales, amounted to P300,000. 31. The net realizable value of the accounts receivable at December 31, 2021 is overstated (understated) by:

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter6: Business Expenses

Section: Chapter Questions

Problem 44P

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Bristax Corporation recorded $1,385,660 in credit sales for the year, and $732,410 in accounts receivable. The uncollectible percentage is 3.1% for the income statement method and 4.5% for the balance sheet method. A. Record the year-end adjusting entry for 2018 bad debt using the income statement method. B. Record the year-end adjusting entry for 2018 bad debt using the balance sheet method. C. Assume there was a previous debit balance in Allowance for Doubtful Accounts of $20,550; record the year-end entry for bad debt using the income statement method, and then the entry using the balance sheet method. D. Assume there was a previous credit balance in Allowance for Doubtful Accounts of $17,430; record the year-end entry for bad debt using the income statement method, and then the entry using the balance sheet method.
Ink Records recorded $2,333,898 in credit sales for the year and $1,466,990 in accounts receivable. The uncollectible percentage is 3% for the income statement method and 5% for the balance sheet method. A. Record the year-end adjusting entry for 2018 bad debt using the income statement method. B. Record the year-end adjusting entry for 2018 bad debt using the balance sheet method. C. Assume there was a previous credit balance in Allowance for Doubtful Accounts of $20,254; record the year-end entry for bad debt using the income statement method, and then the entry using the balance sheet method.
Clovis Enterprises reports $845,500 in credit sales for 2018 and $933,000 in 2019. It has a $758,000 accounts receivable balance at the end of 2018 and $841,000 at the end of 2019. Clovis uses the income statement method to record bad debt estimation at 4% during 2018. To manage earnings more favorably, Clovis changes bad debt estimation to the balance sheet method at 5% during 2019. A. Determine the bad debt estimation for 2018. B. Determine the bad debt estimation for 2019. C. Describe a benefit to Clovis Enterprises in 2019 as a result of its earnings management.
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