Chap009 Solution Manual(1)

Sid i hope this clarifies the matter for you if you

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Sid, I hope this clarifies the matter for you. If you have further questions, please call me. 9-37
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Chapter 09 - Accounting for Receivables Taking It to the Net — BTN 9-5 1. At December 31, 2009, eBay’s ($ thousands) net accounts receivable were $407,507, and at December 31, 2008, its net accounts receivable were $435,197. 2. ($ millions) December 31, 2009 December 31, 2008 Gross accounts receivable ....................... $510,336 $540,083 Allowance for doubtful accounts (including authorized credits) ................ 102,829 104,886 % of uncollectible accounts ..................... 20.1% 19.4% 3. These percentages seem high compared to other companies, but eBay’s operations are all online, and the risk of fraudulent transactions is likely higher than other companies. eBay’s prior experience has apparently caused them to estimate this high amount of uncollectible accounts. Teamwork in Action — BTN 9-6 Instructor note : Computations for the aging schedule are in the Problem 9-4A solution. The check figure for total estimated uncollectibles is $45,025 . Adjusting entry Dec. 31 Bad Debts Expense ........................................ 31,625 Allowance for Doubtful Accounts ............ 31,625 To record estimated bad debts. * * Req. allowance balance ................... $45,025 credit Unadjusted balance ......................... 13,400 credit Adj. to the allowance ....................... $31,625 credit December 31, 2011, Balance Sheet Presentation Accounts Receivable ........................................... $1,220,000* Less Allowance for Doubtful Accounts .............. 45,025 1,174,975** * Total of each age category. ** Net Realizable Accounts Receivable. 9-38
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Chapter 09 - Accounting for Receivables Entrepreneurial Decision — BTN 9-7 1. Computation of added annual net income or loss a. Added Monthly Net Income or Loss under Plan A Increased sales .............................................................. $250,000 Cost of sales .................................................................. (135,500) Credit card fees ($250,000 x 4.75%) .............................. (11,875) Recordkeeping and shipping ($250,000 x 6%) ............. (15,000) Lost gross profit on store sales ($35,000 x 25%) ......... (8,750 ) Additional net income (loss) ......................................... $ 78,875 b. Added Monthly Net Income or Loss under Plan B Increased sales .............................................................. $500,000 Cost of sales .................................................................. (375,000) Recordkeeping and shipping ($500,000 x 4%) ............. (20,000) Uncollectible accounts ($500,000 x 6.2%) .................... (31,000 ) Additional net income (loss) ......................................... $ 74,000 9-39
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Chapter 09 - Accounting for Receivables Entrepreneurial Decision — BTN 9-7 continued 2. Plan (A) provides a slightly higher income, so if the company can only pursue one plan now, based purely on the financial aspect, it should choose Plan (A). Plan (A) might expand its product into new markets, and could increase sales over time. However, this is a new distribution method for the company, and it might lack the expertise to do it well. It will need to further assess whether the benefit of additional expansion of online sales over time will be more/less than the cost of lost sales through normal channels. Taking credit cards for these online sales reduces its risk of uncollectible accounts. The credit card company takes the risk of the customer not paying. Plan (B) is a way to expand sales, possibly into more locations. This is an expansion of a distribution method now employed. The company does run some unknown risk associated with having new customers. While the company may understand its current customers, it will need to monitor the new customers to make sure that the uncollectible accounts do not rise beyond acceptable levels.
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