Problem 5-7A (Algo) Overestimating future uncollectible accounts (LO5-3, 5-4) Humanity International sells medical and food supplies to those in need in underdeveloped countries. Customers in these countries are often very poor and must purchase items on account. At the end of 2024, total accounts receivable equal $1,270,000. The company understands that it's dealing with high credit risk clients. These countries are often in the middle of a financial crisis, civil war, severe drought, or some other difficult circumstance. Because of this, Humanity International typically estimates the percentage of uncollectible accounts to be 35% (= $444,500). Actual write-offs in 2025 total only $270,000, which means that the company significantly overestimated uncollectible accounts in 2024. It appears that efforts by the International Monetary Fund (IMF) and the United Nations (UN), and a mild winter mixed with adequate spring rains, have provided for more stable economic conditions than were expected, helping customers to pay on their accounts. Required: 1. Record the adjusting entry for uncollectible accounts at the end of 2024, assuming there is no balance in Allowance for Uncollectible Accounts at the end of 2024 before any adjustment. 2. By the end of 2025, Humanity International has the benefit of hindsight to know that estimates of uncollectible accounts in 2024 were too high. How did this overestimation affect the reported amounts of total assets and expenses at the end of 2024? Ignore tax effects. 3. Should Humanity International prepare new financial statements for 2024 to show the correct amount of uncollectible accounts?
Problem 5-7A (Algo) Overestimating future uncollectible accounts (LO5-3, 5-4) Humanity International sells medical and food supplies to those in need in underdeveloped countries. Customers in these countries are often very poor and must purchase items on account. At the end of 2024, total accounts receivable equal $1,270,000. The company understands that it's dealing with high credit risk clients. These countries are often in the middle of a financial crisis, civil war, severe drought, or some other difficult circumstance. Because of this, Humanity International typically estimates the percentage of uncollectible accounts to be 35% (= $444,500). Actual write-offs in 2025 total only $270,000, which means that the company significantly overestimated uncollectible accounts in 2024. It appears that efforts by the International Monetary Fund (IMF) and the United Nations (UN), and a mild winter mixed with adequate spring rains, have provided for more stable economic conditions than were expected, helping customers to pay on their accounts. Required: 1. Record the adjusting entry for uncollectible accounts at the end of 2024, assuming there is no balance in Allowance for Uncollectible Accounts at the end of 2024 before any adjustment. 2. By the end of 2025, Humanity International has the benefit of hindsight to know that estimates of uncollectible accounts in 2024 were too high. How did this overestimation affect the reported amounts of total assets and expenses at the end of 2024? Ignore tax effects. 3. Should Humanity International prepare new financial statements for 2024 to show the correct amount of uncollectible accounts?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
100%
Transcribed Image Text:ces
Problem 5-7A (Algo) Overestimating future uncollectible accounts (LO5-3, 5-4)
Humanity International sells medical and food supplies to those in need in underdeveloped countries. Customers in these countries
are often very poor and must purchase items on account. At the end of 2024, total accounts receivable equal $1,270,000. The
company understands that it's dealing with high credit risk clients. These countries are often in the middle of a financial crisis, civil war,
severe drought, or some other difficult circumstance. Because of this, Humanity International typically estimates the percentage of
uncollectible accounts to be 35% (= $444,500). Actual write-offs in 2025 total only $270,000, which means that the company
significantly overestimated uncollectible accounts in 2024. It appears that efforts by the International Monetary Fund (IMF) and the
United Nations (UN), and a mild winter mixed with adequate spring rains, have provided for more stable economic conditions than
were expected, helping customers to pay on their accounts.
Required:
1. Record the adjusting entry for uncollectible accounts at the end of 2024, assuming there is no balance in Allowance for
Uncollectible Accounts at the end of 2024 before any adjustment.
2. By the end of 2025, Humanity International has the benefit of hindsight to know that estimates of uncollectible accounts in 2024
were too high. How did this overestimation affect the reported amounts of total assets and expenses at the end of 2024? Ignore tax
effects.
3. Should Humanity International prepare new financial statements for 2024 to show the correct amount of uncollectible accounts?
Complete this question by entering your answers in the tabs below.
Required 1 Required 2 Required 3
By the end of 2025, Humanity International has the benefit of hindsight to know that estimates of uncollectible accounts in
2024 were too high. How did this overestimation affect the reported amounts of total assets and expenses at the end of
2024? Ignore tax effects.
Total assets
Total expenses
Overstated or
Understated
Overstated by
Understated by
Amount
< Required 1
Required 3 >
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 4 images
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