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Unformatted text preview: Problem 9-2A Information related to Hermesch Company for 2008 is summarized below. Total credit sales $2,200,000 Accounts receivable at December 31 825,000 Bad debts written off 33,000 Instructions (a) What amount of bad debts expense will Hermesch Company report if it uses the direct writeoff method of accounting for bad debts? (b) Assume that Hermesch Company estimates its bad debts expense to be 2% of credit sales. What amount of bad debts expense will Hermesch record if it has an Allowance for Doubtful Accounts credit balance of $4,000? (c) Assume that Hermesch Company estimates its bad debts expense based on 6% of accounts receivable.What amount of bad debts expense will Hermesch record if it has an Allowance for Doubtful Accounts credit balance of $3,000? (d) Assume the same facts as in (c), except that there is a $3,000 debit balance in Allowance for Doubtful Accounts.What amount of bad debts expense will Hermesch record? (e) What is the weakness of the direct write-off method of reporting bad debts expense? (a) $33,000 (b) $44,000 (c) $45,500 (d) $52,500 (e) Weaknesses with direct write-off method: It doesn't match expenses to associated revenues realizable value at the balance sheet date. P10-3A On January 1, 2008, Pele Company purchased the following two machines for use in its production process. Machine A: The cash price of this machine was $38,000. Related expenditures included: sales tax $1,700, shipping costs $150, insurance during shipping $80, installat and testing costs $70, and $100 of oil and lubricants to be used with the mach during its first year of operations. Pele estimates that the useful life of the machine is 5 years with a $5,000 salvage value remaining at the end of tha time period. Assume that the straight-line method of depreciation is used. Machine B: The recorded cost of this machine was $160,000. Pele estimates that the usef life of the machine is 4 years with a $10,000 salvage value remaining at the en of that time period....
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This note was uploaded on 08/12/2010 for the course ACC ACC 281 taught by Professor Machuca during the Spring '10 term at University of Phoenix.
- Spring '10