Chapter 5, Problem 5.28P

Problem 5.28

LO 5

Bad debts analysis-Allowance account and financial statement effects The following is a portion of the current asset section of the balance sheets of HiROE Co., at December 31, 2017 and 2016:

12/31/17 12/31/16

Accounts receivable, less allowance for uncollectible accounts of $54,000 and $18,000, respectively $906,000 $722,000

Required:

1. Describe how the allowance amount at December 31, 2017, was most likely determined.
2. If had debts expense for 2017 totaled $48,000, what was the amount of accounts receivable written off during the year? (Hint: Use the T-account model of the Allowance account, plug in the three amounts that you know, and solve for the unknown.)
3. The December 31, 2017, Allowance account balance includes $21,000 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:
1. Working capital at December 31, 2017?
2. Net income and ROI for the year ended December 31, 2017?
4. What do you suppose was the level of HiROE’s sales in 2017, compared to 2016? Explain your answer.
5. Calculate the ratio of the Allowance for Uncollectible Accounts balance to the Accounts Receivable balance at December 31, 2016 and 2017. What factors might have caused the change in this ratio?