Friends at the group discount price 900 180 5 the

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friends at the group discount price ($900 = $180 × 5). The tour is scheduled for May 7. May 7 - The fishing tour occurs. Outdoor Expo asks that payment be made within 30 days of the tour and offers a 5% discount for payment within 15 days. May 9 - Charlene is upset that no one caught a single fish and asks management for a discount. Outdoor Expo has a strict policy of no discounts related to number of fish caught. May 15 - Upon deeper investigation, management of Outdoor Expo discovers that Charlene’s tour was led by a new guide who did not take the group to some of the better fishing spots. In concession, management gives Charlene a sales allowance of 40% of the amount due. May 20 - Charlene pays for the tour after deducting the sales allowance. Required 1. Calculate the necessary transaction(s) for Outdoor Expo on each date. 2. Calculate net sales. 3. Show how Outdoor Expo would present net sales in its income statement.
23 6-45 Reporting Gross Sales and Net Sales Companies record credit card discounts , sales discounts , and sales returns and allowances separately to allow management to monitor these transactions. Sales revenue Less: Credit card discounts Sales discounts Sales returns and allowances Net sales 6-46 Do on Your Own Libby E6-3 (Page 308)
24 6-47 Oracle Example In 2009, Oracle sold $20,000 of software to Solyndra on account. Solyndra did not pay its bill in 2009 or 2010. On August 31, 2011, Solyndra filed for bankruptcy and Oracle wrote the receivable off its books. Query: In what year will Oracle record bad debt expense relating to this receivable? 6-48 When Should we recognize Uncollectible Amounts as an Expense? Alternative 1: Specific write-off method (not allowed by GAAP) Under this method, bad debt expense is recorded when the company determines that a specific receivable account is no longer collectible and is written off This method is required for tax purposes This method is unacceptable for GAAP because the bad debt expense would often be determined in a different year from the year that the revenue was recognized Thus, the specific write-off method violates the matching principle Alternative 2: Allowance method (required by GAAP) Under this method, the company estimates the amount of bad debts associated with particular sales made during the year This method records an estimated bad debt expense by increasing the “Allowance for Doubtful Accounts” for estimated uncollectible receivables Thus, this method properly matches the expense to the year that the related revenue was reported
25 6-49 Allowance for Doubtful Accounts Accounts receivable Less: Allowance for doubtful accounts Net realizable value of accounts receivable Amount the business expects to collect. Balance Sheet Disclosure 6-50 Example: Urban Outfitters (Page C-3)
26 6-51 Allowance Method Under the allowance method, the company periodically estimates the amount of its uncollectible accounts. It then makes an adjustment to record the estimated bad debts for the period: Bad debt expense XXX Allowance for Doubtful Accounts XXX

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