Mgmt 200 Assignment Soln 10-16-09

Mgmt 200 Assignment Soln 10-16-09 - Management 200...

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Management 200 – Introductory Financial Accounting– Fall 2009 Krannert School of Management - Purdue University Solutions to class assignment for October 16, 2009 Exercise 7-1 Comparison of the Direct Write-off and Allowance Methods of Accounting for Bad Debts Net income under each of the two alternatives is as follows: Direct write-off method: $145,000 – $10,500 = $134,500 Allowance method: $145,000 – (2% X $650,000) = $145,000 – $13,000 = $132,000 Conclusion: The direct write-off method would result in a lesser amount of expense and therefore in a higher net income. However, under current accounting standards, if bad debts are material in amount, the allowance method must be used. In addition, it is not acceptable for a company to choose accounting methods on the basis of their effects on net income. Problem 7-1 Allowance Method for Accounting for Bad Debts 1. Accounts Receivable 840,000 Cash 210,000 Sales Revenue 1,050,000 To record sales for year: $1,050,000 X 80% = $840,000 credit sales. Cash
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This note was uploaded on 01/29/2010 for the course MGMT 201 taught by Professor Rowe during the Spring '08 term at Purdue University-West Lafayette.

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Mgmt 200 Assignment Soln 10-16-09 - Management 200...

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