7. Walkaway Company started business on January 1, 2013. After considering the collection experience of other entities in the industry, the entity established an allowance for bad debts estimated at 5% of credit sales. Outstanding accounts receivable recorded on December 31, 2013 totaled P115,000, while the allowance for bad debts account had a credit balance of P12,500 after recording estimated doubtful accounts nense for December and after writing off P2,500 of uncollectible accounts. Further analysis of the entity's accounts showed that merchandise purchased in the current year amounted to P450,000 and ending merchandise inventory was P75,000. Goods were sold at 40% above cost. Sales on account amounted to 80% of total sales. Total collections from customers, on the other hand, excluding cash sales, amounted to P300,000. What is the effect of the transactions on accounts receivable and allowance for bad debts? Accounts receivable Allowance for bad debts a. 2,500 understated b. 6,000 understated c. 82,500 understated d. 85,000 understated 6,000 understated 8,500 understated 10,000 understated 12,600 understated

7. Walkaway Company started business on January 1, 2013. After considering the collection experience of other entities in the industry, the entity established an allowance for bad debts estimated at 5% of credit sales. Outstanding accounts receivable recorded on December 31, 2013 totaled P115,000, while the allowance for bad debts account had a credit balance of P12,500 after recording estimated doubtful accounts nense for December and after writing off P2,500 of uncollectible accounts. Further analysis of the entity's accounts showed that merchandise purchased in the current year amounted to P450,000 and ending merchandise inventory was P75,000. Goods were sold at 40% above cost. Sales on account amounted to 80% of total sales. Total collections from customers, on the other hand, excluding cash sales, amounted to P300,000. What is the effect of the transactions on accounts receivable and allowance for bad debts? Accounts receivable Allowance for bad debts a. 2,500 understated b. 6,000 understated c. 82,500 understated d. 85,000 understated 6,000 understated 8,500 understated 10,000 understated 12,600 understated

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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