Chapter 5, Problem 5.27P

Problem 5.27

LO 5

Bad debts analysis-Allowance account and financial statement effect The following is a portion of the current assets section of the balance sheets of Avanti’s, Inc., at December 31, 2017 and 2016:

12/31/17 12/31/16

Accounts receivable, less allowance for bad debts of $19,000 and $35,800, respectively $346,400

$472,800

Required:

1. If $23,600 of accounts receivable were written off during 2017, what was the amount of bad debts expense recognized for the year? (Hint: Use a T-account model of the Allowance account, plug in the three amounts that you know, and solve for the unknown.)
2. The December 31, 2017, Allowance account balance includes $6,200 for a past due account that is not likely to be collected. This account has not been written off. If it had been written off, what would have been the effect of the write-off on:
3. Working capital at December 31, 2017?
4. Net income and ROI for the year ended December 31, 2017?
5. What do you suppose was the level of Avanti’s sales in 2017, compared to 2016? Explain your answer.