Problem 5CPA Co. decided on January 1, 2020 to review its accounting practices. This is due to changingeconomic conditions and to make its financial statements more comparable to those of other companiesin its industry. The following changes will be effective as of January 1, 2020:CPA Co. decided to change its allowance for bad debts from 2% to 4% of its outstandingaccounts receivable. CPA Co.'s receivable balance at December 31,2020 was P690,000.Allowance for bad debts had a debit balance of P2,000 before adjustment.• CPA Co. decided to use the straight-line method of depreciation on its equipment instead of thesum-of-the years' digit method. It was also decided that this asset has 10 more years of usefullife as of January 1, 2020. The equipment was purchased on January 1, 2010 at a cost ofP1,100,000. On the acquisition date, it was estimated that the equipment would have a 15-yearuseful with no residual value._5. How much is the bad debts expense for the year ended December 31, 2020 as aresult of the accounting change?_6. What is the amount of depreciation expense on equipment for the year endedDecember 31, 2020 as a result of the accounting change?

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Business

Accounting

esult of the accounting change?

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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Question

Problem 5
CPA Co. decided on January 1, 2020 to review its accounting practices. This is due to changing
economic conditions and to make its financial statements more comparable to those of other companies
in its industry. The following changes will be effective as of January 1, 2020:
CPA Co. decided to change its allowance for bad debts from 2% to 4% of its outstanding
accounts receivable. CPA Co.'s receivable balance at December 31,2020 was P690,000.
Allowance for bad debts had a debit balance of P2,000 before adjustment.
• CPA Co. decided to use the straight-line method of depreciation on its equipment instead of the
sum-of-the years' digit method. It was also decided that this asset has 10 more years of useful
life as of January 1, 2020. The equipment was purchased on January 1, 2010 at a cost of
P1,100,000. On the acquisition date, it was estimated that the equipment would have a 15-year
useful with no residual value.
_5. How much is the bad debts expense for the year ended December 31, 2020 as a
result of the accounting change?
_6. What is the amount of depreciation expense on equipment for the year ended
December 31, 2020 as a result of the accounting change?

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