A recent annual report for CVS contained the following information (dollars in thousands) at the end of its fiscal year: Accounts receivable Allowance for doubtful accounts Year 2 Year 1 $ 13,488,000 $ 12,450,000 (307,000) (286,000) $ 13,181,000 $ 12,164,000 A footnote to the financial statements disclosed that uncollectible accounts amounting to $156,000 and $96,000 were written off as bad debts during Year 2 and Year 1, respectively. Assume that the tax rate for CVS was 21 percent. Required: 1. Determine the bad debt expense for year 2 based on the preceding facts. (Hint. Use the Allowance for Doubtful Accounts T-account to solve for the missing value.) (Enter your answers in thousands not in dollars.) 2. Working capital is defined as current assets minus current liabilities. Would the working capital be affected by the write-off of an uncollectible account? 3. Would the net income be affected by the $156,000 write-off during year 2? 1. 2. 3. Bad debt expense Would the working capital be affected by the write-off of an uncollectible account? Would the net income be affected by the $156,000 write-off during year 2? No No
A recent annual report for CVS contained the following information (dollars in thousands) at the end of its fiscal year: Accounts receivable Allowance for doubtful accounts Year 2 Year 1 $ 13,488,000 $ 12,450,000 (307,000) (286,000) $ 13,181,000 $ 12,164,000 A footnote to the financial statements disclosed that uncollectible accounts amounting to $156,000 and $96,000 were written off as bad debts during Year 2 and Year 1, respectively. Assume that the tax rate for CVS was 21 percent. Required: 1. Determine the bad debt expense for year 2 based on the preceding facts. (Hint. Use the Allowance for Doubtful Accounts T-account to solve for the missing value.) (Enter your answers in thousands not in dollars.) 2. Working capital is defined as current assets minus current liabilities. Would the working capital be affected by the write-off of an uncollectible account? 3. Would the net income be affected by the $156,000 write-off during year 2? 1. 2. 3. Bad debt expense Would the working capital be affected by the write-off of an uncollectible account? Would the net income be affected by the $156,000 write-off during year 2? No No
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Concept explainers
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Question
Vinubhai
Transcribed Image Text:A recent annual report for CVS contained the following information (dollars in thousands) at the end of its fiscal year:
Year 2
Year 1
$ 13,488,000 $ 12,450,000
(307,000)
(286,000)
$ 13,181,000 $ 12,164,000
Accounts receivable
Allowance for doubtful accounts
A footnote to the financial statements disclosed that uncollectible accounts amounting to $156,000 and $96,000 were
written off as bad debts during Year 2 and Year 1, respectively. Assume that the tax rate for CVS was 21 percent.
Required:
1. Determine the bad debt expense for year 2 based on the preceding facts. (Hint. Use the Allowance for Doubtful
Accounts T-account to solve for the missing value.) (Enter your answers in thousands not in dollars.)
2. Working capital is defined as current assets minus current liabilities. Would the working capital be affected by the
write-off of an uncollectible account?
3. Would the net income be affected by the $156,000 write-off during year 2?
1.
2.
3.
Bad debt expense
Would the working capital be affected by the write-off of an uncollectible account?
Would the net income be affected by the $156,000 write-off during year 2?
No
No
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education