Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
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Chapter 6, Problem 4P
Allowance for Bad Accounts Installment Jewelry Company has been in business for 5 years but has never had its financial statements audited. Engaged to audit them for 2019, you find that the company’s
On your recommendation, the company agrees to revise its accounts for 2019 to give effect to bad account treatment on the allowance basis. The allowance is to be based on a percentage of credit sales that is derived from the experience of prior years. Statistics for the past 5 years are shown in the following table:
Required:
Prepare the
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Installment Jewelry Company has been in business for 5 years but has never had its financial statements audited. Engaged to audit them for 2019, you find that the company’s balance sheet carries no allowance for bad accounts. Bad accounts have been expensed as written-off and recoveries credited to income as collected. The company’s policy is to write off at December 31 of each year those accounts on which no collections have been received for three months. The installment contracts generally are for 2 years.
On your recommendation, the company agrees to revise its accounts for 2019 to give effect to bad account treatment on the allowance basis. The allowance is to be based on a percentage of credit sales that is derived from the experience of prior years. Statistics for the past 5 years are shown in the following table:
Year of Sale
Credit Sales
Accounts Written Off
Recoveries
2015
2016
2017
2018
2019
2015
$100,000
$550
$500
$1,450
2016
250,000
1,000
4,000…
Timmons Company had a January 1 credit balance in its Allowance for Doubtful Accounts of $7,000 for the current year. The following transactions and events affected the Allowance for Doubtful Accounts during the current year:
Apr. 15
Bard’s account receivable of $5,700 was deemed un-collectable.
July 1
Drake paid the full amount of a previously written-off account receivable. This receivable of $2,300 had been written off in the prior year.
Dec. 31
Bad debts expense of $7,500 was recorded.
What amount should appear in the allowance for doubtful accounts in the December 31 balance sheet for the current year?
Isbell Company’s December 31, 2024 unadjusted trial balance reports a $1,000 credit balance in Allowance for Doubtful Accounts. As a result of a review and aging of accounts receivable at that time, it has been determined that an allowance for doubtful accounts of $5,500 is needed at December 31, 2024. What amount should Isbell record as Bad Debt Expense for the year ended December 31, 2024?
Select one:
$13,500
$5,500
$4,500
$6,500
Chapter 6 Solutions
Intermediate Accounting: Reporting And Analysis
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