Allowance Method for Accounting for Bad Debts At the beginning of 2017, EZ Tech Company's Accounts Receivable balance was $217,000, and the balance in Allowance for Doubtful Accounts was $3,700. EZ Tech's sales in 2017 were $1,630,000, 80% of which were on credit. Collections on account during the year were $1,040,000. The company wrote off $6,000 of uncollectible accounts during the year. Required:     2.  Identify and analyze the adjustments to recognize bad debts assuming that (a) bad debts expense is 4% of credit sales and (b) amounts expected to be uncollectible are 7% of the year-end accounts receivable. a.  Identify and analyze the adjustments to recognize bad debts assuming that bad debts expense is 4% of credit sales. Activity Investing  Accounts Allowance for Doubtful Accounts Decrease, Bad Debts Expense Decrease  Statement(s) Balance Sheet and Income Statement  How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item. If a contra account is decreased, it will have the effect of increasing the corresponding financial statement item. Balance Sheet   Income Statement             Stockholders'   Net Assets = Liabilities + Equity   Revenues – Expenses = Income   fill in the blank f728fb052f98048_2     fill in the blank f728fb052f98048_4   fill in the blank f728fb052f98048_5     fill in the blank f728fb052f98048_7     fill in the blank f728fb052f98048_9   fill in the blank f728fb052f98048_10   b.  Identify and analyze the adjustments to recognize bad debts assuming that amounts expected to be uncollectible are 7% of the year-end accounts receivable. Activity Operating  Accounts Allowance for Doubtful Accounts Decrease, Bad Debts Expense Increase  Statement(s) Income Statement only  How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item. If a contra account is decreased, it will have the effect of increasing the corresponding financial statement item. Balance Sheet   Income Statement             Stockholders'   Net Assets = Liabilities + Equity   Revenues – Expenses = Income   fill in the blank 8570c608ffff03b_2     fill in the blank 8570c608ffff03b_4   fill in the blank 8570c608ffff03b_5     fill in the blank 8570c608ffff03b_7     fill in the blank 8570c608ffff03b_9   fill in the blank 8570c608ffff03b_10   Feedback   3.  What is the net realizable value of accounts receivable on December 31, 2017, under each assumption in part (2)? Using the percentage of sales approach, the net realizable value of the receivables is? $fill in the blank 1b0583ff4068020_1 Using the percentage of year-end receivables approach, the net realizable value of the receivables is? $fill in the blank 1b0583ff4068020_2

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
icon
Concept explainers
Question

Allowance Method for Accounting for Bad Debts

At the beginning of 2017, EZ Tech Company's Accounts Receivable balance was $217,000, and the balance in Allowance for Doubtful Accounts was $3,700. EZ Tech's sales in 2017 were $1,630,000, 80% of which were on credit. Collections on account during the year were $1,040,000. The company wrote off $6,000 of uncollectible accounts during the year.

Required:

 
 

2.  Identify and analyze the adjustments to recognize bad debts assuming that (a) bad debts expense is 4% of credit sales and (b) amounts expected to be uncollectible are 7% of the year-end accounts receivable.

a.  Identify and analyze the adjustments to recognize bad debts assuming that bad debts expense is 4% of credit sales.

Activity Investing 
Accounts Allowance for Doubtful Accounts Decrease, Bad Debts Expense Decrease 
Statement(s) Balance Sheet and Income Statement 

How does this entry affect the accounting equation?
If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item. If a contra account is decreased, it will have the effect of increasing the corresponding financial statement item.

Balance Sheet   Income Statement
            Stockholders'   Net
Assets = Liabilities + Equity   Revenues Expenses = Income
  fill in the blank f728fb052f98048_2     fill in the blank f728fb052f98048_4   fill in the blank f728fb052f98048_5     fill in the blank f728fb052f98048_7     fill in the blank f728fb052f98048_9   fill in the blank f728fb052f98048_10
 

b.  Identify and analyze the adjustments to recognize bad debts assuming that amounts expected to be uncollectible are 7% of the year-end accounts receivable.

Activity Operating 
Accounts Allowance for Doubtful Accounts Decrease, Bad Debts Expense Increase 
Statement(s) Income Statement only 

How does this entry affect the accounting equation?
If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item. If a contra account is decreased, it will have the effect of increasing the corresponding financial statement item.

Balance Sheet   Income Statement
            Stockholders'   Net
Assets = Liabilities + Equity   Revenues Expenses = Income
  fill in the blank 8570c608ffff03b_2     fill in the blank 8570c608ffff03b_4   fill in the blank 8570c608ffff03b_5     fill in the blank 8570c608ffff03b_7     fill in the blank 8570c608ffff03b_9   fill in the blank 8570c608ffff03b_10
 
Feedback
 

3.  What is the net realizable value of accounts receivable on December 31, 2017, under each assumption in part (2)?

Using the percentage of sales approach, the net realizable value of the receivables is?
$fill in the blank 1b0583ff4068020_1

Using the percentage of year-end receivables approach, the net realizable value of the receivables is?
$fill in the blank 1b0583ff4068020_2

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 3 images

Blurred answer
Knowledge Booster
Receivables Management
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.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education