Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 4, Problem 5C
It is February 16, 2020, and you are auditing Davenport Corporation's financial statements for 2019 (which will be issued in March 2020). You read in the newspaper that Travis Corporation, a major customer of Davenport, is in financial difficulty. Included in Davenport’s accounts receivable is $50,000 (a material amount) owed to it by Travis. You approach Jim Davenport, president, with this information and suggest that a reduction of accounts receivable and recognition of a loss for 2019 might be appropriate. Jim replies, “Why should we make an adjustment? Ted Travis, the president of Travis Corporation, is a friend of mine; he will find a way to pay us, one way or another. Furthermore, this occurred in 2020, so let’s wait and see what happens; we can always make an adjustment later this year. Our 2019 income and year-end
Required:
From financial reporting and ethical perspectives, prepare a response to Jim Davenport regarding this issue.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
LG Co. has recently hired a new independent auditor, Jeff Clan, CPA, who says he wants "to get everything straightened out." Consequently, he has proposed the following accounting changes in connection with LG Co.'s 2022 financial statements.
1. At December 31, 2021, the client had a receivable of P820,000 from Blue Stones Inc. on its statement of financial position. Blue Stones has gone bankrupt, and no recovery is expected. The client proposes to write off the receivable as a prior period item.
2. The client proposes the following changes in depreciation policies.
* For office furniture and fixtures, it proposes to change from a 10-year useful life to an 8-year life. If this change had been made in prior years, retained earnings at December 31, 2021, would have been P250,000 less. The effect of the change on 2022 income alone is a reduction of P60,000.
* For its equipment in the leasing division, the client proposes to adopt the sum-of-the years'-digits depreciation method. The…
Brady is hired in 2021 to be the accountant for Anderson Manufacturing, a private company. At the end of 2021, the balance of Accounts Receivable is $29,000. In the past, Anderson has used only the direct write-off method to account for bad debts. Based on a detailed analysis of amounts owed, Brady believes the best estimate of future bad debts is $9,000. If Anderson continues to use the direct write-off method to account for uncollectible accounts, what adjustment, if any, would Brady record at the end of 2021? What adjustment, if any, would Brady record if Anderson instead uses the allowance method to account for uncollectible accounts?
Casey Emberton is conducting the audit of Jackson Inc. as of December 31, 2020. At the beginning of the evidence gathering, Emberton becomes aware that one of Jackson’s major customers (Perry) has been experiencing significant financial difficulties since November 2020 and there is doubt about their continued survival. Perry normally accounts for 5 percent of Jackson’s net sales. After performing the necessary procedures, Emberton believes that $2.8 million of Perry’s receivable balance will ultimately become uncollectible. Emberton further believes this amount is material to Jackson’s financial condition and results of operations. Describe the most appropriate course of action that the auditors should take – What should they require of the client?).
Chapter 4 Solutions
Intermediate Accounting: Reporting And Analysis
Ch. 4 - What is the accounting equation? The balance sheet...Ch. 4 - Prob. 2GICh. 4 - How does the balance sheet at the end of an...Ch. 4 - What does recognition mean in accounting?Ch. 4 - Prob. 5GICh. 4 - Prob. 6GICh. 4 - What is equity? How is equity determined?Ch. 4 - What is a mixed attribute measurement model? Why...Ch. 4 - Identify at least five alternatives for measuring...Ch. 4 - Identify at least three alternatives for measuring...
Ch. 4 - Prob. 11GICh. 4 - Prob. 12GICh. 4 - Prob. 13GICh. 4 - Prob. 14GICh. 4 - Prob. 15GICh. 4 - Prob. 16GICh. 4 - Define (a) common stock, (b) additional paid-in...Ch. 4 - Prob. 18GICh. 4 - Prob. 19GICh. 4 - What are investments by owners? Distributions to...Ch. 4 - What accounting policies are disclosed in the...Ch. 4 - Give several examples of financial instruments and...Ch. 4 - Prob. 23GICh. 4 - Prob. 24GICh. 4 - Prob. 25GICh. 4 - Prob. 26GICh. 4 - Prob. 27GICh. 4 - Prob. 28GICh. 4 - Prob. 29GICh. 4 - Prob. 30GICh. 4 - Prob. 31GICh. 4 - Prob. 32GICh. 4 - Prob. 33GICh. 4 - Prob. 34GICh. 4 - A donated fixed asset (from a governmental unit)...Ch. 4 - Prob. 2MCCh. 4 - Prob. 3MCCh. 4 - On October 2, 2020, a company borrowed cash and...Ch. 4 - Prob. 5MCCh. 4 - Rent revenue collected 1 month in advance should...Ch. 4 - Prob. 7MCCh. 4 - Prob. 8MCCh. 4 - Which of the following should be disclosed in the...Ch. 4 - Prob. 10MCCh. 4 - Prob. 1RECh. 4 - Dorothy Corporation had the following accounts in...Ch. 4 - Dorothy Corporation had the following accounts in...Ch. 4 - Based on the information in RE4-2 and RE4-3,...Ch. 4 - Prob. 5RECh. 4 - Oz Corporation has the following assets at...Ch. 4 - Prob. 7RECh. 4 - Prob. 8RECh. 4 - Scarecrow Inc. issues 50,000 shares of 2 par value...Ch. 4 - Tinman Corporation reports the following balances...Ch. 4 - Prob. 1ECh. 4 - Plant and Equipment Your analysis of Moen...Ch. 4 - GRAF CORPORATION Shareholders Equity Section of...Ch. 4 - Prob. 4ECh. 4 - Classifications on Balance Sheet The balance sheet...Ch. 4 - Balance Sheet Baggett Companys balance sheet...Ch. 4 - Prob. 7ECh. 4 - Balance Sheet Calculations Dawson Companys balance...Ch. 4 - Prob. 9ECh. 4 - Correction of Balance Sheet On December 31, 2019,...Ch. 4 - Prob. 11ECh. 4 - Prob. 12ECh. 4 - Classifications on Balance Sheet The current...Ch. 4 - Balance Sheet without Amounts The following is an...Ch. 4 - Prob. 3PCh. 4 - Prob. 4PCh. 4 - Balance Sheet Calculations Cornerstone Development...Ch. 4 - Prob. 6PCh. 4 - Complex Balance Sheet Presented below is the...Ch. 4 - Analyzing Starbuckss Balance Sheet Disclosures...Ch. 4 - Prob. 9PCh. 4 - Balance Sheet The following is a list (in random...Ch. 4 - Balance Sheet The following is an alphabetical...Ch. 4 - Balance Sheet from Adjusted Trial Balance The...Ch. 4 - Balance Sheet and Notes Listed here in random...Ch. 4 - Comprehensive: Balance Sheet, Schedules, and Notes...Ch. 4 - Use following formation for P4-15 and P4-16:...Ch. 4 - Ratios Analyses: McCormick Refer to the...Ch. 4 - Prob. 17PCh. 4 - Use the following information for P417 and P418:...Ch. 4 - Prob. 1CCh. 4 - It is the end of 2019 and you are an accountant...Ch. 4 - Prob. 3CCh. 4 - Valuation of Assets and Stock A friend has come to...Ch. 4 - It is February 16, 2020, and you are auditing...Ch. 4 - You are the accountant for Speedy Company and are...Ch. 4 - Prob. 7CCh. 4 - Prob. 8CCh. 4 - Situation You are the assistant accountant for...
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
- You are the accountant for Speedy Company and are preparing the financial statements for 2019. Near the end of 2019, Speedy loaned its president 100,000 (a material amount) because she was having financial difficulties. The note was properly recorded as a note receivable by Speedy. You are unsure of how to classify this note on the 2019 ending balance sheet and ask the president when the note is due. She replies, We never really set a due date; I might repay it in 2020 or maybe in a couple of years when I get more financially secure. It would be best to classify this note as a current asset in the usual manner because that will increase our working capital and current ratio, which will make our creditors and shareholders happy. Required: From financial reporting and ethical perspectives, what do you think of the presidents suggestion?arrow_forwardYour client is preparing financial statements to show the bank. You know that he has incurred a refrigeration repair expense during the month, but you see no such expense on the books. When you question the client, he tells you that he has not yet paid the 1,255 bill. Your client is on the accrual basis of accounting. He does not want the refrigeration repair expense on the books as of the end of the month because he wants his profits to look good for the bank. Is your client behaving ethically by suggesting that the refrigeration repair expense not be booked until the 1,255 is paid? Are you behaving ethically if you agree to the clients request? What principle is involved here?arrow_forwardBlue Company, an architectural firm, has a bookkeeper who maintains a cash receipts and disbursements journal. At the end of the year (2019), the company hires you to convert the cash receipts and disbursements into accrual basis revenues and expenses. The total cash receipts are summarized as follows. The accounts receivable from customers at the end of the year are 120,000. You note that the accounts receivable at the beginning of the year were 190,000. The cash sales included 30,000 of prepayments for services to be provided over the period January 1, 2019, through December 31, 2021. a. Compute the companys accrual basis gross income for 2019. b. Would you recommend that Blue use the cash method or the accrual method? Why? c. The company does not maintain an allowance for uncollectible accounts. Would you recommend that such an allowance be established for tax purposes? Explain.arrow_forward
- On January 1, 2019, Northfield Corporation becomes delinquent on a 100,000, 14% note to First National Bank, on which 16,651 of interest has accrued. On January 2, 2019, the bank agrees to restructure the note. It forgives the accrued interest, extends the repayment date to December 31, 2021, and reduces the interest rate to 10%. Required: Prepare a schedule for Northfield to compute the annual interest expense in regard to the preceding note for each year of the restructuring agreement.arrow_forwardAt the end of 2024, Garcia Company’s balance for Accounts Receivable is $11,000, while the company’s total assets equal $1,410,000. In addition, the company expects to collect all of its receivables in 2025. In 2025, however, one customer owing $2,600 becomes a bad debt on March 14. Record the write off of this customer’s account in 2025 using the direct write-off method. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)arrow_forwardAli Coffee Bean assumes that due to Corona, at the end of September 2020 there will be bad debts of $5,000,000 from accounts receivable belonging to Budi's Coffee Shop amounting to $20,000,000. It turned out that on October 21, 2020, Budi's Coffee Shop stated that they were unable to pay their receivables amounting to $1,000,000, so the CEO of Ali Coffee Bean allowed to write-off the receivables. As Ali Coffee Bean's financial staff, make:a. Journal Entry for write-off of Budi's Coffee Shop.b. What was the cash realizable value of Ali Coffee Shop's receivables prior to the write-off of Budi's Coffee Shop receivables in September?c. What is the cash realized value of Ali Coffee Shop's receivables after the write-off of Budi's Coffee Shop receivables?arrow_forward
- At December 31, 2019, one of TOCINO Company’s credit customers, HOTDOG Trading, is experiencing financial difficulties. As a result, HOTDOG Trading has missed the payment of the principal amount of its notes payable of P3, 000, 000 and accrued interest for the year is P300, 000. A restructuring arrangement was approved by the management of TOCINO Company, as follows:❖ The principal was reduced to P2, 000, 000 and will be due on December 31, 2021;❖ Accrued interest of P300, 000 is condoned;❖ Interest rate is reduced to 8% payable on December 31, 2020 and December 31, 2021.The prevailing market interest rate for similar instrument at the time of restructuring (December 31, 2019) is 12%. What is the impairment loss to be recognized on December 31, 2019? (use four decimal places for the PV factor)a. P 0 c. P1, 369, 520b. P 1, 157, 432 d. P1, 447, 184arrow_forwardAt the end of 2021, Worthy Co.’s balance for Accounts Receivable is $20,000, while the company’s total assets equal $1,500,000. In addition, the company expects to collect all of its receivables in 2022. In 2022, however, one customer owing $2,000 becomes a bad debt on March 14. Record the write off of this customer’s account in 2022 using the direct write-off method.arrow_forwardCocoMelon Company is preparing its 2020 financial statement, accounting period ends on December 31. You have been asked to compute the amount included in the "Trade and Other Receivable" of the entity's financial position from the following information: A. A $10,000 check received from a customer dated February 1, 2021 is on hand. B. A customer's check for $20,000 was included in the December 20 deposit. It was returned by the bank stamped "NSF”. No entry had yet been made by Masaya to reflect the return. C. A $50,000 Certificate of Deposits on which $2,000 of interest accrued to December 31 has just been recorded by debiting Interest Receivable and crediting Interest Income. The chief accountant proposes to report the $50,000 as "Cash in Bank”. D. Masaya has a $5,000 petty cash fund. As of December 31, the fund custodian reported expense vouchers covering various expenses in the amount of $4,570 and cash of $420. E. Postage stamps that costs $100 are in the cash drawer. F. A cashier's…arrow_forward
- You are in the course of auditing a trading company for the year ended 31 March 2020. You are that the client appears to have accounts receivable collection problem. It is the client's policy to allow a 30-day credit to each of its customers and to provide a general provision for bad debt as 1 per cent of the year-end accounts receivable balance. However, you observe that most of the client's customers have been outstanding for more than 60 days at the year ended 31 March 2020. According to past experience with the client, you noted that the client had written off of bad debt amounted to $378,000 and 423,500 for the year ended 31 March 2019 and 31 March 2018, respectively. In those years, accounts receivable balances as at 31 March 2019 was $3,450,000 and as at 31 March 2018 was $5,650,000. It is industrial practice to provide 1 per cent of the year-end accounts receivable balance as provision for bad debts. a) Perform (i) an industry analysis and (ii) a trend analysis based on the…arrow_forwardIn connection with your examination of the financial statements of Ringo, Inc. for the year ended December 31, 2020, you were able to obtain certain information during your audit of the accounts receivable and related accounts. The December 31, 2020 balance in the Accounts Receivable control account is P837,900.An aging schedule of the accounts receivable as of December 31, 2020 is presented below: Age Net Debit Balance Percentage to be applied after corrections have been made 60 days & under P387,800 1 percent 61 to 90 days 307,100 2 percent 91 to 120 days 89,800 5 percent Over 120 days 53,200 Definitely uncollectible, P9,000; the remainder is estimated to be 25% uncollectible. P837,900 The Allowance for Doubtful Accounts schedule is presented below: Debit Credit Balance January 1, 2020…arrow_forwardIn connection with your examination of the financial statements of Ringo, Inc. for the year ended December 31, 2020, you were able to obtain certain information during your audit of the accounts receivable and related accounts. The December 31, 2020 balance in the Accounts Receivable control account is P837,900.An aging schedule of the accounts receivable as of December 31, 2020 is presented below: Age Net Debit Balance Percentage to be applied after corrections have been made 60 days & under P387,800 1 percent 61 to 90 days 307,100 2 percent 91 to 120 days 89,800 5 percent Over 120 days 53,200 Definitely uncollectible, P9,000; the remainder is estimated to be 25% uncollectible. P837,900 The Allowance for Doubtful Accounts schedule is presented below: Debit Credit Balance January 1,…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT 
College Accounting (Book Only): A Career ApproachAccountingISBN:9781337280570Author:Scott, Cathy J.Publisher:South-Western College Pub
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Individual Income Taxes
Accounting
ISBN:9780357109731
Author:Hoffman
Publisher:CENGAGE LEARNING - CONSIGNMENT
College Accounting (Book Only): A Career Approach
Accounting
ISBN:9781337280570
Author:Scott, Cathy J.
Publisher:South-Western College Pub
Operating Loss Carryback and Carryforward; Author: SuperfastCPA;https://www.youtube.com/watch?v=XiYhgzSGDAk;License: Standard Youtube License