Wildhorse follows the policy of debiting Bad Debt Expense as accounts are written off. The chief accountant maintains that this procedure is appropriate for financial statement purposes because the Internal Revenue Service will not accept other methods for recognizing bad debts. All of Wildhorse's sales are on a 30-day credit basis. Sales for the current year total $2,200,000. The balance in Accounts Receivable at year-end is $87,100 and an analysis of customer risk and charge-off experience indicates that 12% of receivables will be uncollectible (assume a zero balance in the allowance). (b) By what amount would income before taxes differ if bad debt expense was computed using the percentage-of-receivables approach? Net income would be $ under the percentage-of-receivables approach.
Wildhorse follows the policy of debiting Bad Debt Expense as accounts are written off. The chief accountant maintains that this procedure is appropriate for financial statement purposes because the Internal Revenue Service will not accept other methods for recognizing bad debts. All of Wildhorse's sales are on a 30-day credit basis. Sales for the current year total $2,200,000. The balance in Accounts Receivable at year-end is $87,100 and an analysis of customer risk and charge-off experience indicates that 12% of receivables will be uncollectible (assume a zero balance in the allowance). (b) By what amount would income before taxes differ if bad debt expense was computed using the percentage-of-receivables approach? Net income would be $ under the percentage-of-receivables approach.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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
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Transcribed Image Text:The chief accountant for Wildhorse Corporation provides you with the following list of accounts receivable written off in the current
year.
Date
Customer
Amount
March 31
E. L. Masters Company
$7,900
June 30
Stephen Crane Associates
7,000
September 30
Amy Lowell's Dress Shop
7,300
December 31
R. Frost, Inc.
9,500
Wildhorse follows the policy of debiting Bad Debt Expense as accounts are written off. The chief accountant maintains that this
procedure is appropriate for financial statement purposes because the Internal Revenue Service will not accept other methods for
recognizing bad debts.
All of Wildhorse's sales are on a 30-day credit basis. Sales for the current year total $2,200,000. The balance in Accounts Receivable at
year-end is $87,100 and an analysis of customer risk and charge-off experience indicates that 12% of receivables will be uncollectible
(assume a zero balance in the allowance).
(b) By what amount would income before taxes differ if bad debt expense was computed using the percentage-of-receivables
approach?
Net income would be $
✰ under the percentage-of-receivables approach.
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