FINANCIAL ACCT-CONNECT
8th Edition
ISBN: 9781266627903
Author: Wild
Publisher: INTER MCG
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On January 1, Xtreme Co. began offering credit with terms of n/30. Uncollectible accounts are estimated to be 1% of credit sales, which is the average for the industry. The CEO, Todd Hurley, has no background in accounting and is struggling to understand the allowance method.
Write a brief memo to Todd explaining the allowance method and how this information is reported in the financial statements.
As the accountant for Clean Air Controls, you attend a meeting with the sales managers to discuss credit policies. At the meeting, you report that bad debts expense for the year is estimated to be $85,000 and account receivables at year end is $1,500,000 less a $57,000 allowance for doubtful accounts. Arthur Levitt, a sales manager, asks why bad debts expense and the allowance are not the same amount.
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1. Write a professional email explaining this concept to Arthur. The company estimates bad debts expense as 3% of sales.
As the accountant for Pure-Air Distributing, you attend a sales managers’ meeting devoted to a discussion of credit policies. At the meeting, you report that bad debts expense is estimated to be $59,000 and accounts receivable at year-end amount to $1,750,000 less a $43,000 allowance for doubtful accounts. Sid Omar, a sales manager, expresses confusion over why bad debts expense and the allowance for doubtful accounts are different amounts. Write a one-page memorandum to him explaining why a difference in bad debts expense and the allowance for doubtful accounts is not unusual. The company estimates bad debts expense as 2% of sales.
Chapter 7 Solutions
FINANCIAL ACCT-CONNECT
Ch. 7 - Prob. 1DQCh. 7 - Prob. 2DQCh. 7 - Prob. 3DQCh. 7 - Prob. 4DQCh. 7 - Prob. 5DQCh. 7 - Prob. 6DQCh. 7 - Prob. 7DQCh. 7 - Prob. 8DQCh. 7 - Prob. 9DQCh. 7 - Prob. 10DQ
Ch. 7 - Prob. 1QSCh. 7 - Solstice Company determines on October 1 that it...Ch. 7 - Solstice Company determines on October 1 that it...Ch. 7 - The following list describes aspects of either the...Ch. 7 - Gomez Corp. uses the allowance method to account...Ch. 7 - Prob. 6QSCh. 7 - Prob. 7QSCh. 7 - Prob. 8QSCh. 7 - Prob. 9QSCh. 7 - Prob. 10QSCh. 7 - Prob. 11QSCh. 7 - Prob. 12QSCh. 7 - Prob. 13QSCh. 7 - Accounts receivable subsidiary ledger; schedule of...Ch. 7 - Prob. 2ECh. 7 - Prob. 3ECh. 7 - Prob. 4ECh. 7 - Percent of accounts receivable method P2 At each...Ch. 7 - Aging of receivables method P2 Daley Company...Ch. 7 - Percent of receivables method P2 Refer to the...Ch. 7 - Writing off receivables P2 Refer to the...Ch. 7 - Prob. 9ECh. 7 - Prob. 10ECh. 7 - Notes receivable transactions P3 Refer to the...Ch. 7 - Prob. 12ECh. 7 - Prob. 13ECh. 7 - Prob. 14ECh. 7 - Prob. 15ECh. 7 - Prob. 16ECh. 7 - Sales on account and credit card sales C1 Mayfair...Ch. 7 - Estimating and reporting bad debts P2 At December...Ch. 7 - Aging accounts receivable and accounting for bad...Ch. 7 - Prob. 4PSACh. 7 - Prob. 5PSACh. 7 - Prob. 1PSBCh. 7 - Prob. 2PSBCh. 7 - Prob. 3PSBCh. 7 - Prob. 4PSBCh. 7 - Prob. 5PSBCh. 7 - Santana Rey, owner of Business Solutions, realizes...Ch. 7 - Comparative figures for Apple and Google follow....Ch. 7 - Anton Blair is the manager of a medium-size...Ch. 7 - As the accountant for Pure-Air Distributing, you...Ch. 7 - Access eBays February 6, 2015, filing of its 10-K...Ch. 7 - Prob. 7BTNCh. 7 - Prob. 9BTN
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- You manage the Accounts Receivable Department of a merchandising business. Your billing clerk sent a bill for $2 to a customer who had charged $100 in goods (including sales tax) with terms of 2/10, n/20. The customer called and indicated his displeasure; he can’t understand an error like this since he paid on time. Explain to your billing clerk why Accounts Receivable is credited for $100 and not $98. How was permission given to the customer to send less than the full amount?arrow_forwardElton John, a friend of yours, overheard a discussion at work about changes his employer wants to make in accounting for uncollectible accounts. John knows little about accounting, and he asks you to help make sense of what he heard. Specifically, he asks you to explain the differences between the percentage-of-sales, percentage-of-receivables, and the direct write-off methods for uncollectible accounts. Instructions In a letter of one page (or less), explain to John the three methods of accounting for uncollectibles. Be sure to discuss differences among these methods. Elton John, a friend of yours, overheard a discussion at work about changes his employer wants to make in accounting for uncollectible accounts. John knows little about accounting, and he asks you to help make sense of what he heard. Specifically, he asks you to explain the differences between the percentage-of-sales, percentage-of-receivables, and the direct write-off methods for uncollectible accounts. Instructions In…arrow_forwardYou are the manager of the Accounts Receivable Department for a merchandising business. Your billing clerk sent a bill for $2 to a customer who had charged $100 in goods (including sales tax) with terms 2/10, n/30. The customer has called and indicated his displeasure; he can't understand an error like this since he paid on time. For your initial post, explain to your billing clerk why Accounts Receivable is credited for $100 and not $98. Include an explanation as to how permission was given to send less than the full amount?arrow_forward
- April showers sells goods on credit to most of its customers. In order to control its debtor collection system, the company maintaiņs a sales ledger control account. In preparing the accounts for the year to 31 October 2019 the accountant discovers that the total of all the personal accounts in the sales ledger amounts to sh12, 802, whereas the balance on the sales ledger control account is sh12,550. Upon investigating the matter, the following errors were discovered: 1. Sales for the week ending 27 March 2019 amounting to sh850 had been omitted from the control accoun t. 2. A debtor's account balance of sh300 had not been included in the list of balances. &. Cash received of sh 750 had been entered in a personal account as sh570. 4. Discounts allowed totaling sh100 had not been entered in the control account. 5. A personal account balance had been undercast by sh200. a. A contra item of sh400 with the purchase ledger had not been entered in the control account. 1. A bad debt of sh500…arrow_forwardplease answer these 2 questions. Their pictures are attached as well 1. Under the allowance method, which of the following does not change the balance in the Accounts Receivable account? A) Collections on customer accounts. B) Write-offs. C) Returns on credit sales D) Bad debt expense adjustment. 2. On November 10 of the current year, Flores Mills provides services to a customer for $8,000 with credit terms 2/10, n/30. The customer made the correct payment on November 17. How would Flores record the collection of cash on November 17? A. Cash 7,840 Accounts Receivable. 7,840 B. Cash 7,840 Sales Discount 160 Accounts Receivable 8,000 C. Cash 7,840 Sales Revenue 160 Accounts Receivable 8000 D. Cash 8000 Accounts Receivable 8000arrow_forwardBlossom Company uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is $310000 and credit sales are $3110000. Management estimates that 4% of accounts receivable will be uncollectible. What adjusting entry will Blossom Company make if the Allowance for Doubtful Accounts has a credit balance of $3100 before adjustment?arrow_forward
- Anis supplies stationery to her customers on credit. Based on previous years’ trends, 2% of her accounts receivable will turn bad. To be prudent, she wants to record this potential loss in her books. Which of the following is the correct journal entry to record this estimate? Select one: a. Debit- Allowance for doubtful debtsCredit- Accounts receivable b. Debit- Allowance for doubtful debtsCredit- Statement of Profit or Loss and Other Comprehensive Income c. Debit- Statement of Profit or Loss and Other Comprehensive IncomeCredit- Allowance for doubtful debts d. Debit- Bad debt expenseCredit- Accounts receivablearrow_forwardThe chief accountant for Dickinson Corporation provides you with the following list of accounts receivable written off in the current year. Date Customer Amount March 31 E. L. Masters Company $7,800 June 30 Stephen Crane Associates 6,700 September 30 Amy Lowell"s Dress Shop 7,000 December 31 R. Frost, Inc. 9,830 Dickinson follows the policy of debiting Bad Debt Expense as accounts are written off. The chief accountant maintains that this procedure is appropriate for financial statement purposes because the Internal Revenue Service will not accept other methods for recognizing bad debts. All of Dickinson’s sales are on a 30-day credit basis. Sales for the current year total $2,200,000. The balance in Accounts Receivable at year-end is $77,000 and an analysis of customer risk and charge-off experience indicates that 12% of receivables will be uncollectible (assume a zero balance in the allowance). Instructions a. Do you agree or disagree with…arrow_forwardKingbird & Co. reported the following information in its general ledger for the year ended November 30, 2021. Mr. Kingbird has learned that the receivable from Solar Company is not collectible due to the downturn in the economy and authorizes his accountant to write off the account. Sales Debit Credit 920,000 Allowance for Doubtful Accounts Debit Credit 12,600 Accounts Receivable Debit Credit 469,000 Accounts Receivable Subledger - Solar Company Debit Credit 4,400 Record the write off on November 30, 2021. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit Nov, 30 Allowance for Doubtful Accounts 4,400 Accounts Receivable 4.400 (b) Six months later, Mr. Solar sends Kingbird & Co. payment in full his previously written off account. Record the two required entries for this transaction. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)…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_forwardDuring its first year of operations, Cullumber Company had credit sales of $3,701,300; $657,200 remained uncollected at year-end. The credit manager estimates that $40,500 of these receivables will become uncollectible. Prepare the journal entry to record the estimated uncollectibles. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit Prepare the current assets section of the balance sheet for Cullumber Company. Assume that in addition to the receivables it has cash of $92,900, inventory of $131,400, and prepaid insurance of $8,500. (List Current Assets in order of liquidity.) CULLUMBER COMPANYBalance Sheet (Partial) Current AssetsCurrent LiabilitiesIntangible AssetsLong-term InvestmentsLong-term LiabilitiesProperty, Plant…arrow_forwardFor a business that uses the allowance method of accounting for uncollectible receivables: Journalize the entries to record the following: Use correct journal format. Just use the month for the date. Record the adjusting entry at December 31, the end of the first fiscal year, to record the bad debt expense. The accounts receivable account has a balance of $850,000, and the contra asset account before adjustment has a debit balance of $4000. Analysis of the receivables (aging) indicates uncollectible receivables of $17,200. In March of the next year, the $720 owed by Fronk Co. on account is written off as uncollectible. In November of the next year, $400 of the Fronk Co. account 1s reinstated and payment of that amount is received. In December of the next year, $250 is received on the $800 owed by Dodger Co. and the remainder is written off as uncollectible.arrow_forward
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