Reportsreceivablesatnetrealizablevalue

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Unformatted text preview: ncollectible Accounts Receivable Percentage-of-Sales Approach Illustration: Chad Shumway Corp. estimates from past experience that about 2 percent of credit sales become uncollectible. If Chad Shumway has credit sales of $400,000 in 2010, it records bad debt expense as follows. Bad Debt Expense Allowance for Doubtful Accounts Chapter 7-37 8,000 8,000 LO 5 Explain accounting issues related to valuation of accounts receivable. Uncollectible Accounts Receivable Uncollectible Accounts Receivable Percentage-of-Receivables Approach not matching. reports receivables at net realizable value. Companies may apply this method using one composite rate, or an aging schedule of accounts receivable. Chapter 7-38 LO 5 Explain accounting issues related to valuation of accounts receivable. Uncollectible Accounts Receivable Uncollectible Accounts Receivable What entry would Wilson make assuming that no balance existed in the allowance account? Bad Debt Expense Allowance for Doubtful Accounts Chapter 7-39 37,650 37,650 LO 5 Explain accounting issues related to valuation of accounts receivable. Uncollectible Accounts Receivable Uncollectible Accounts Receivable What entry would Wilson make assuming the allowance account had a credit balance of $800 before adjustment? Bad Debt Expense ($37,650 – $800) Allowance for Doubtful Accounts Chapter 7-40 36,850 36,850 LO 5 Explain accounting issues related to valuation of accounts receivable. Uncollectible Accounts Receivable Uncollectible Accounts Receivable E7-7 (Recording Bad Debts) Sandel Company reports the following financial information before adjustments. Instructions: Prepare the journal entry to record bad debt expense assuming Sandel Company estimates bad debts at (a) 1% of net sales and (b) 5% of accounts receivable. Chapter 7-41 LO 5 Explain accounting issues related to valuation of accounts receivable. Uncollectible Accounts Receivable Uncollectible Accounts Receivable E7-7 (Recording Bad Debts) Sandel Company reports the following financial information before adjustments. Instructions: Prepare the journal entry assuming Sandel estimates bad debts at (a) 1% of net sales. Bad Debt Expense Allowance for Doubtful Accounts Chapter 7-42 7,500 7,500 ($800,000 – $50,000) x 1% = $7,500 LO 5 Uncollectible Accounts Receivable Uncollectible Accounts Receivable E7-7 (Recording Bad Debts) Sandel Company reports the following financial information before adjustments. Instructions: Prepare the journal entry assuming Sandel estimates bad debts at (b) 5% of accounts receivable. Bad Debt Expense Allowance for Doubtful Accounts Chapter 7-43 6,000 6,000 ($160,000 x 5%) – $2,000) = $6,000 LO 5 Uncollectible Accounts Receivable Uncollectible Accounts Receivable Summary Percentage of Sales approach: Bad debt expense estimate is related to a nominal account (Sales), any balance in the allowance account is ignored. Achieves a proper matching of cost and revenues. Percentage of Receivables approach: Results in a more accurate valuation of receivables on the balance sheet. Method may also be applied using an aging schedule. Chapter 7-44 LO 5 Explain accounting issues related to valuation of accounts receivable....
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This document was uploaded on 02/08/2014.

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