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Organics Plus is considering which bad debt estimation method works best for its company. It is deciding between the income statement method, balance sheet method of receivables, and balance sheet aging of receivables method. If it uses t ncome statement method, bad debt would be estimated at 4 percent of credit sales. If it were to use the balance sheet method, it would estimate bad debt at 12 percent of accounts receivable. If it were to use the balance sheet aging of receivables method, it would split its receivables into three categories: 0-30 days past due at 6 percent, 31-90 days past due at 19 percent, and over 90 days past due at 26 percent. There is currently a zero balance, transferred from the prio vear's Allowance for Doubtful Accounts. The following information available from the year-end income statement and balance sheet. 2018 Year-End Total for Organics Plus Credit Sales $1,860,000 Accounts Receivable 650,000 There is also additional information regarding the distribution of accounts receivable by age. Past-Due Accounts Receivable Category Total 0-30 days $350,000 31-90 days 100,000 Over 90 days 150,000 Required: A. Prepare the year-end adjusting entry for bad debt, using the (1) income statement method, (2) balance sheet method of receivables, and (3) balance sheet aging of receivables method. Dec. 31 (1) Dec. 31 (2) Dec. 31 (3) 00 00 00

Organics Plus is considering which bad debt estimation method works best for its company. It is deciding between the income statement method, balance sheet method of receivables, and balance sheet aging of receivables method. If it uses t ncome statement method, bad debt would be estimated at 4 percent of credit sales. If it were to use the balance sheet method, it would estimate bad debt at 12 percent of accounts receivable. If it were to use the balance sheet aging of receivables method, it would split its receivables into three categories: 0-30 days past due at 6 percent, 31-90 days past due at 19 percent, and over 90 days past due at 26 percent. There is currently a zero balance, transferred from the prio vear's Allowance for Doubtful Accounts. The following information available from the year-end income statement and balance sheet. 2018 Year-End Total for Organics Plus Credit Sales $1,860,000 Accounts Receivable 650,000 There is also additional information regarding the distribution of accounts receivable by age. Past-Due Accounts Receivable Category Total 0-30 days $350,000 31-90 days 100,000 Over 90 days 150,000 Required: A. Prepare the year-end adjusting entry for bad debt, using the (1) income statement method, (2) balance sheet method of receivables, and (3) balance sheet aging of receivables method. Dec. 31 (1) Dec. 31 (2) Dec. 31 (3) 00 00 00

Principles of Accounting Volume 1
Principles of Accounting Volume 1
19th Edition
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax
Chapter9: Accounting For Receivables
Section: Chapter Questions
Problem 15PA: Organics Plus is considering which bad debt estimation method works best for its company. It is...
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Organics Plus is considering which bad debt estimation method works best for its company. It is deciding between the income statement method, balance sheet method of receivables, and balance sheet aging receivables method. If it uses the income statement method, bad debt would be estimated at 4 percent of credit sales. If it were to use the balance sheet method, it would estimate bad debt at 12 percent of accounts receivable. If it were to use the balance sheet aging of receivables method, it would split its receivables into three categories: 0-30 days past due at 6 percent, 31-90 days past due at 19 percent, and over 90 days past due at 26 percent. There is currently a zero balance, transferred from the prior year's Allowance for Doubtful Accounts. The following information is available from the year-end income statement and balance sheet. 2018 Year-End Total for Organics Plus Credit Sales $1,860,000 Accounts Receivable 650,000 There is also additional information regarding the distribution of accounts receivable by age. Past-Due Accounts Receivable Category Total 0-30 days $350,000 31-90 days 100,000 Over 90 days 150,000 Required: A. Prepare the year-end adjusting entry for bad debt, using the (1) income statement method, (2) balance sheet method of receivables, and (3) balance sheet aging of receivables method. Dec. 31 (1) Dec. 31 (2) Dec. 31 (3)
Transcribed Image Text:Organics Plus is considering which bad debt estimation method works best for its company. It is deciding between the income statement method, balance sheet method of receivables, and balance sheet aging receivables method. If it uses the income statement method, bad debt would be estimated at 4 percent of credit sales. If it were to use the balance sheet method, it would estimate bad debt at 12 percent of accounts receivable. If it were to use the balance sheet aging of receivables method, it would split its receivables into three categories: 0-30 days past due at 6 percent, 31-90 days past due at 19 percent, and over 90 days past due at 26 percent. There is currently a zero balance, transferred from the prior year's Allowance for Doubtful Accounts. The following information is available from the year-end income statement and balance sheet. 2018 Year-End Total for Organics Plus Credit Sales $1,860,000 Accounts Receivable 650,000 There is also additional information regarding the distribution of accounts receivable by age. Past-Due Accounts Receivable Category Total 0-30 days $350,000 31-90 days 100,000 Over 90 days 150,000 Required: A. Prepare the year-end adjusting entry for bad debt, using the (1) income statement method, (2) balance sheet method of receivables, and (3) balance sheet aging of receivables method. Dec. 31 (1) Dec. 31 (2) Dec. 31 (3)
B. What would be the result obtained when you calculate the bad debt expense and required allowance for doubtful accounts using the three methods and assumptions above? a. The difference between the highest result and the lowest result is only $4,600. b. The aging method gives the lowest result; the income statement method the highest. c. The balance sheet method gives a result that is between that of the other two methods. d. The income statement result is generally considered more accurate than the other methods.
Transcribed Image Text:B. What would be the result obtained when you calculate the bad debt expense and required allowance for doubtful accounts using the three methods and assumptions above? a. The difference between the highest result and the lowest result is only $4,600. b. The aging method gives the lowest result; the income statement method the highest. c. The balance sheet method gives a result that is between that of the other two methods. d. The income statement result is generally considered more accurate than the other methods.
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