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Week8_ch7_solutions [Uploaded](1)

Week8_ch7_solutions [Uploaded](1) - FB2100 Accounting I...

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FB2100 Accounting I Semester A 2010 Solutions to Assigned Questions Week 8 Chapter 7 Problem 7-3A (35 minutes) Part 1 a. Expense is 1.5% of credit sales Dec. 31 Bad Debts Expense ...................................... 85,230 Allowance for Doubtful Accounts ........ 85,230 To record estimated bad debts [$5,682,000 x .015]. b. Expense is 1% of total sales Dec. 31 Bad Debts Expense ...................................... 75,870 Allowance for Doubtful Accounts ........ 75,870 To record estimated bad debts [($1,905,000 + $5,682,000) x .01]. c. Allowance is 5% of accounts receivable Dec. 31 Bad Debts Expense ...................................... 80,085 Allowance for Doubtful Accounts ........ 80,085 To record estimated bad debts. * * Unadjusted balance ........................................ $16,580 debit Estimated balance ($1,270,100 x 5%) ........... 63,505 credit Required adjustment ...................................... $80,085 credit Part 2 Current assets Accounts receivable ....................................... $1,270,100 Less allowance for doubtful accounts ......... (68,650)* $1,201,450 Or: Accounts receivable (net of $68,650* uncollectible accounts) ............................... $1,201,450 * Adjustment to the allowance ......................... $85,230 credit Unadjusted allowance balance ..................... 16,580 debit Adjusted balance ............................................ $68,650 credit Part 3 Current assets Accounts receivable ....................................... $1,270,100 Less allowance for doubtful accts. ............... (63,505)** $1,206,595 Or: Accounts receivable (net of $63,505** uncollectible accounts) ............................... $1,206,595 ** See computations in Part 1c.
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FB2100 Accounting I Semester A 2010 Solutions to Assigned Questions Week 8 Chapter 7 Ethics Challenge BTN 7-3 1. If the estimate for bad debts is reduced then less Bad Debts Expense will be recognized on the income statement resulting in a higher net income. It also means that a lower allowance will be shown on the balance sheet, which will result in a higher realizable value for receivables and, therefore, a larger amount of current liquid assets.
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