chapter 8 (old) solutions - 8-1Financial Reporting and...

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Unformatted text preview: 8-1Financial Reporting and AnalysisChapter 8SolutionsReceivablesExercisesExercisesE8-1. Account analysis(AICPA adapted)To find the amount of gross sales, start by determining credit sales. We cando this with the accounts receivable T-account below.Accounts ReceivableBeginning AR$80,000$1,000Accounts written offCredit salesX35,000Cash collectedEnding AR$74,000$80,000 + X - $1,000 - $35,000 = $74,000X = $30,000 = credit salesNow that we know the amount of credit sales, we can add cash sales to thisamount to find gross sales.Credit sales$30,000Cash sales30,000Gross sales$60,000E8-2. Account analysis(AICPA adapted)(Note to instructor: Students should be aware that the account titles allowancefor uncollectibles and allowance for doubtful accounts are used interchangeablyin practice.To find the amount of accounts receivable before the allowance, we need torecreate the journal entries that affected accounts receivable and the allowancefor doubtful accounts to record bad debt expense. Since we know that $10,000was written off as uncollectible from accounts receivable, the first journal entryis:DRAllowance for doubtful accounts$10,000CRAccounts receivable$10,0008-2The entry for $40,000 of bad debt expense would be:DRBad debt expense$40,000CRAllowance for doubtful accounts$40,000Based on the two entries above, the balance in the allowance for doubtfulaccounts at the end of the year was $30,000. The amount of accountsreceivable beforethe allowance for doubtful accounts that should appear onthe balance sheet is calculated as:Net accounts receivable$250,000Allowance for doubtful accounts30,000Gross accounts receivable$280,000E8-3. Ratio effects of write-offs(AICPA adapted)1. The current ratio does not change as a result of the write-off to theallowance account. Accounts receivable and its contra account, allowancefor doubtful accounts are reduced by the same amount. Thus, accountsreceivable (net), which is the number used in computing the current ratio,does not change.b. X equals Y2. The accounts receivable (net) balance does not change as a result of thewrite-off to the allowance account. When the $100 account is written off,accounts receivable and allowance for doubtful accounts are reduced by thesame amount. Thus netreceivables is the same before and after the write-off.b. X equals Y3. Gross accounts receivable will be lower after the write-off than before thewrite-off because accounts receivable is credited for the $100 uncollectibleaccount that is written-off.a. X greater than YE8-4.Bad debt expense(AICPA adapted)We can determine the amount of bad debt expense in 2001 by first examiningthe allowance for doubtful accounts.Allowance for Doubtful Accounts$1,200Beginning balance1,000Provision for bad debtsAccounts written off$1,600XAdditional provision for bad debts$1,100Ending Balance8-3Solving for the additional provision for bad debts:$1,200 + $1,000 - $1,600 + X = $1,100 X = $500Total bad debt expense for the year ended December 31, 2001 should be:Provision for bad debts...
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chapter 8 (old) solutions - 8-1Financial Reporting and...

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