College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
22nd Edition
ISBN: 9781305666160
Author: James A. Heintz, Robert W. Parry
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 16, Problem 1CP
Martel Co. has $320,000 in Accounts Receivable on December 31, 20-1, the end of its first year of operations. The business is new, so it has no prior experience with uncollectible accounts. In Martel’s overall industry, the percentage of uncollectible accounts receivable is about 3%. For companies similar to Martel in size and operations, the percentage is about 5%. Martel decides to use the overall industry experience as the basis for its estimate of uncollectible accounts.
Prepare the
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
By the end of its first year of operations, Previts Corporation has credit sales of $690,000 and accounts receivable of $290,000. Given it’s the first year of operations, Previts’ management is unsure how much allowance for uncollectible accounts it should establish. One of the company’s competitors, which has been in the same industry for an extended period, estimates uncollectible accounts to be 2% of ending accounts receivable, so Previts decides to use that same amount. However, actual write-offs in the following year were 25% of the $290,000 (= $72,500). Previts’ inexperience in the industry led to making sales to high credit risk customers.
3. Should Previts prepare new financial statements for the first year of operations to show the correct amount of uncollectible accounts?
Yes
No
By the end of its first year of operations, Previts Corporation has credit sales of $690,000 and accounts receivable of $290,000. Given it’s the first year of operations, Previts’ management is unsure how much allowance for uncollectible accounts it should establish. One of the company’s competitors, which has been in the same industry for an extended period, estimates uncollectible accounts to be 2% of ending accounts receivable, so Previts decides to use that same amount. However, actual write-offs in the following year were 25% of the $290,000 (= $72,500). Previts’ inexperience in the industry led to making sales to high credit risk customers.
Required:
1. Record the adjustment for uncollectible accounts at the end of the first year of operations using the 2% estimate of accounts receivable. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)
Journal entry worksheet
Record the adjusting…
Chapter 16 Solutions
College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)
Ch. 16 - There are two methods of accounting for...Ch. 16 - The matching principle states that debits should...Ch. 16 - Using the percentage of sales method, the balance...Ch. 16 - When an account is written off under the allowance...Ch. 16 - Each time an account is written off under the...Ch. 16 - The dollar difference between Accounts Receivable...Ch. 16 - A business has an ending balance in Accounts...Ch. 16 - A business has an ending balance in Accounts...Ch. 16 - Prob. 4MCCh. 16 - Under the allowance method, when an account is...
Ch. 16 - Prob. 1CECh. 16 - Tonis Tech Shop has total credit sales for the...Ch. 16 - Fionas Pharmacy uses the direct write-off method...Ch. 16 - Prob. 1RQCh. 16 - Prob. 2RQCh. 16 - Prob. 3RQCh. 16 - Prob. 4RQCh. 16 - Prob. 5RQCh. 16 - Prob. 6RQCh. 16 - Prob. 7RQCh. 16 - Under the allowance method, what journal entries...Ch. 16 - Prob. 9RQCh. 16 - Prob. 10RQCh. 16 - CALCULATION OF NET REALIZABLE VALUE L. R. Updike...Ch. 16 - UNCOLLECTIBLE ACCOUNTSPERCENTAGE OF SALES Rossins...Ch. 16 - UNCOLLECTIBLE ACCOUNTSPERCENTAGE OF RECEIVABLES...Ch. 16 - COLLECTION OF ACCOUNTS WRITTEN OFFALLOWANCE METHOD...Ch. 16 - UNCOLLECTIBLE ACCOUNTSPERCENTAGE OF SALES AND...Ch. 16 - DIRECT WRITE-OFF METHOD Maria Rivera, owner of...Ch. 16 - COLLECTION OF ACCOUNT WRITTEN OFFDIRECT WRITE-OFF...Ch. 16 - UNCOLLECTIBLE ACCOUNTSALLOWANCE METHOD Pyle...Ch. 16 - UNCOLLECTIBLE ACCOUNTSPERCENTAGE OF SALES AND...Ch. 16 - AGING ACCOUNTS RECEIVABLE An analysis of the...Ch. 16 - DIRECT WRITE-OFF METHOD Williams Hendricks...Ch. 16 - CALCULATION OF NET REALIZABLE VALUE Mary Martin...Ch. 16 - UNCOLLECTIBLE ACCOUNTS-PERCENTAGE OF SALES Nicoles...Ch. 16 - UNCOLLECTIBLE ACCOUNTS-PERCENTAGE OF RECEIVABLES...Ch. 16 - COLLECTION OF ACCOUNT WRITTEN OFFALLOWANCE METHOD...Ch. 16 - UNCOLLECTIBLE ACCOUNTSPERCENTAGE OF SALES AND...Ch. 16 - DIRECT WRITE-OFF METHOD Brent Mussellman, owner of...Ch. 16 - COLLECTION OF ACCOUNT WRITTEN OFFDIRECT WRITE-OFF...Ch. 16 - UNCOLLECTIBLE ACCOUNTSALLOWANCE METHOD Lewis...Ch. 16 - UNCOLLECTIBLE ACCOUNTSPERCENTAGE OF SALES AND...Ch. 16 - AGING ACCOUNTS RECEIVABLE An analysis of the...Ch. 16 - DIRECT WRITE-OFF METHOD Lee and Chen Distributors...Ch. 16 - Sam and Robert are identical twins. They opened...Ch. 16 - Martel Co. has 320,000 in Accounts Receivable on...Ch. 16 - Prob. 2CPCh. 16 - At the end of 20-3, Martel Co. had 410,000 in...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- At the end of 20-3, Martel Co. had 410,000 in Accounts Receivable and a credit balance of 300 in Allowance for Doubtful Accounts. Martel has now been in business for three years and wants to base its estimate of uncollectible accounts on its own experience. Assume that Martel Co.s adjusting entry for uncollectible accounts on December 31, 20-2, was a debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts of 25,000. (a) Estimate Martels uncollectible accounts percentage based on its actual bad debt experience during the past two years. (b) Prepare the adjusting entry on December 31, 20-3, for Martel Co.s uncollectible accounts.arrow_forwardTonis Tech Shop has total credit sales for the year of 170,000 and estimates that 3% of its credit sales will be uncollectible. Allowance for Doubtful Accounts has a credit balance of 275. Prepare the adjusting entry at year-end for the estimated bad debt expense. (a) Based on an aging of its accounts receivable, Kyles Cyclery estimates that 3,200 of its year-end accounts receivable will be uncollectible. Allowance for Doubtful Accounts has a debit balance of 280 at year-end. Prepare the adjusting entry at year-end for the estimated uncollectible accounts.arrow_forwardDel Spencer is the owner and founder of Del Spencers Mens Clothing Store. Del Spencers has its own house charge accounts and has found from past experience that 10 percent of its sales are for cash. The remaining 90 percent are on credit. An aging schedule for accounts receivable reveals the following pattern: 15 percent of credit sales are paid in the month of sale. 65 percent of credit sales are paid in the first month following the sale. 14 percent of credit sales are paid in the second month following the sale. 6 percent of credit sales are never collected. Credit sales that have not been paid until the second month following the sale are considered overdue and are subject to a 3 percent late charge. Del Spencers has developed the following sales forecast: Required: Prepare a schedule of cash receipts for August and September.arrow_forward
- Casebolt Company wrote off the following accounts receivable as uncollectible for the first year of its operations ending December 31: a. Journalize the write-offs under the direct write-off method. b. Journalize the write-offs under the allowance method. Also, journalize the adjusting entry for uncollectible accounts. The company recorded 5,250,000 of credit sales during the year. Based on past history and industry averages, % of credit sales are expected to be uncollectible. c. How much higher (lower) would Casebolt Companys net income have been under the direct write-off method than under the allowance method?arrow_forwardPorter Insurance Company has three lines of insurance: automobile, property, and life. The life insurance segment has been losing money for the past five quarters, and Leah Harper, Porters controller, has done an analysis of that segment. She has discovered that the commission paid to the agent for the first year the policy is in place is 55 percent of the first-year premium. The second-year commission is 20 percent, and all succeeding years a commission equal to 5 percent of premiums is paid. No salaries are paid to agents; however, Porter does advertise on television and in magazines. Last year, the advertising expense was 500,000. The loss rate (payout on claims) averages 50 percent. Administrative expenses equal 450,000 per year. Revenue last year was 10,000,000 (premiums). The percentage of policies of various lengths is as follows: Experience has shown that if a policy remains in effect for more than two years, it is rarely cancelled. Leah is considering two alternative plans to turn this segment around. Plan 1 requires spending 250,000 on improved customer claim service in hopes that the percentage of policies in effect will take on the following distribution: Total premiums would remain constant at 10,000,000, and there are no other changes in fixed or variable cost behavior. Plan 2 involves dropping the independent agent and commission system and having potential policyholders phone in requests for coverage. Leah estimates that revenue would drop to 7,000,000. Commissions would be zero, but administrative expenses would rise by 1,200,000, and advertising (including direct mail solicitation) would increase by 1,000,000. Required: 1. Prepare a variable-costing income statement for last year for the life insurance segment of Porter Insurance Company. 2. What impact would Plan 1 have on income? 3. What impact would Plan 2 have on income?arrow_forwardPorter Insurance Company has three lines of insurance: automobile, property, and life. The life insurance segment has been losing money for the past five quarters, and Leah Harper, Porters controller, has done an analysis of that segment. She has discovered that the commission paid to the agent for the first year the policy is in place is 55 percent of the first-year premium. The second-year commission is 20 percent, and all succeeding years a commission equal to 5 percent of premiums is paid. No salaries are paid to agents; however, Porter does advertise on television and in magazines. Last year, the advertising expense was 500,000. The loss rate (payout on claims) averages 50 percent. Administrative expenses equal 450,000 per year. Revenue last year was 10,000,000 (premiums). The percentage of policies of various lengths is as follows: Experience has shown that if a policy remains in effect for more than two years, it is rarely cancelled. Leah is considering two alternative plans to turn this segment around. Plan 1 requires spending 250,000 on improved customer claim service in hopes that the percentage of policies in effect will take on the following distribution: Total premiums would remain constant at 10,000,000, and there are no other changes in fixed or variable cost behavior. Plan 2 involves dropping the independent agent and commission system and having potential policyholders phone in requests for coverage. Leah estimates that revenue would drop to 7,000,000. Commissions would be zero, but administrative expenses would rise by 1,200,000, and advertising (including direct mail solicitation) would increase by 1,000,000. Required: 1. Assume Fred holds the policy for one year and then drops it. What is his contribution to Porters operating income? 2. Assuming Fred holds the policy for three years, what is his contribution to Porters operating income in the second and third years? Over a three-year period? What implications does this hold for Porters efforts to retain policyholders?arrow_forward
- Last year, Tobys Hats had net sales of 45,000,000 and cost of goods sold of 29,000,000. Tobys had the following balances: Refer to the information for Tobys on the previous page. Required: Note: Round answers to one decimal place. 1. Calculate the average accounts receivable. 2. Calculate the accounts receivable turnover ratio. 3. Calculate the accounts receivable turnover in days.arrow_forwardDetermining Bad Debt Expense Using the Aging Method At the beginning of the year, Tennyson Auto Parts had an accounts receivable balance of $31,800 and a balance in the allowance for doubtful accounts of $2,980 (credit). During the year, Tennyson had credit sales of $624,300, collected accounts receivable in the amount of $602,700, wrote off $18,600 of accounts receivable, and had the following data for accounts receivable at the end of the period: Required: 1. Determine the desired post adjustment balance in allowance for doubtful accounts. 2. Determine the balance in allowance for doubtful accounts before the bad debt expense adjusting entry is posted. 3. Compute bad debt expense. 4. Prepare the adjusting entry to record bad debt expense.arrow_forwardNonnas Re-Appliance Store collects 55% of its accounts receivable in the month of sale and 40% in the month after the sale. Given the following sales, how much cash will be collected in February?arrow_forward
- On June 30, Isner Inc.s bookkeeper is preparing to close the books for the month. The accounts receivable control total shows a balance of $550, but the accounts receivable subsidiary ledger shows total account balances of $850. The accounts receivable subsidiary ledger is shown here. Can you help find the mistake?arrow_forwardBlock Foods, a retail grocery store, has agreed to purchase all of its merchandise from Square Wholesalers. In return. Block receives a special discount on purchases. Over recent months, Square noticed that purchases by Block had been falling off. At first, Square simply thought that business might be down for Block and was hopeful that their purchases would pick up. When business with Block did not return to a normal level, Square requested financial statements from Block. Squares records indicate that Block purchased 300,000 worth of merchandise during 20-1, the most recent year. Selected information taken from Block's financial statements is as follows: REQUIRED Compute net purchases made by Block during 20-1. Does it appear that Block violated the agreement?arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,
Financial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
Financial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage Learning
College Accounting, Chapters 1-27
Accounting
ISBN:9781337794756
Author:HEINTZ, James A.
Publisher:Cengage Learning,
Financial Accounting
Accounting
ISBN:9781337272124
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
Financial Accounting
Accounting
ISBN:9781305088436
Author:Carl Warren, Jim Reeve, Jonathan Duchac
Publisher:Cengage Learning
Accounts Receivable and Accounts Payable; Author: The Finance Storyteller;https://www.youtube.com/watch?v=x_aUWbQa878;License: Standard Youtube License