Concept explainers
Overestimating future uncollectible accounts (LO5–3, 5–5)
Humanity International sells medical and food supplies to those in need in underdeveloped countries. Customers in these countries are often very poor and must purchase items on account. At the end of 2018, total
Required:
1. Record the adjustment for uncollectible accounts at the end of 2018, assuming there is no balance in Allowance for Uncollectible Accounts at the end of 2018 before any adjustment
2. By the end of 2019, Humanity International has the benefit of hindsight to know that estimates of uncollectible accounts in 2018 were too high. How did this overestimation affect the reported amounts of total assets and expenses at the end of 2018? Ignore tax effects.
3. Should Humanity International prepare new financial statements for 2018 to show the correct amount of uncollectible accounts? Explain.
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