...QUESTION 2 How are bad debts accounted for under the direct write-off method? What are the disadvantages of this method? Home Work Hour aims to provide quality study notes and tutorials to the students of ACC 291 Week 1 Discussion Question 2 in order to ace their studies. ACC 291 WEEK 1 DISCUSSION QUESTION 2 To purchase this visit here: http://www.nerdypupil.com/product/acc-291-week-1-discussion-question-2/ Contact us at: nerdypupil@gmail.com ACC 291 WEEK 1 DISCUSSION QUESTION 2 How are bad debts accounted for under the direct write-off method? What are the disadvantages of this method? Home Work Hour aims to provide quality study notes and tutorials to the students of ACC 291 Week 1 Discussion Question 2 in order to ace their studies. ACC 291 WEEK 1 DISCUSSION QUESTION 2 To purchase this visit here: http://www.nerdypupil.com/product/acc-291-week-1-discussion-question-2/ Contact us at: nerdypupil@gmail.com ACC 291 WEEK 1 DISCUSSION QUESTION 2 How are bad debts accounted for under the direct write-off method? What are the disadvantages of this method? Home Work Hour aims to provide quality study notes and tutorials to the students of ACC 291 Week 1 Discussion Question 2 in order to ace their studies. ACC 291 WEEK 1 DISCUSSION QUESTION 2 To purchase this visit here: http://www.nerdypupil.com/product/acc-291-week-1-discussion-question-2/ Contact us at: nerdypupil@gmail.com ACC 291 WEEK 1 DISCUSSION QUESTION 2 How are bad debts accounted for...
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...Introduction to Accounts Receivable and Bad Debts Expense If we imagine buying something, such as groceries, it's easy to picture ourselves standing at the checkout, writing out a personal check, and taking possession of the goods. It's a simple transaction—we exchange our money for the store's groceries. In the world of business, however, many companies must be willing to sell their goods (or services) on credit. This would be equivalent to the grocer transferring ownership of the groceries to you, issuing a sales invoice, and allowing you to pay for the groceries at a later date. Whenever a seller decides to offer its goods or services on credit, two things happen: (1) the seller boosts its potential to increase revenues since many buyers appreciate the convenience and efficiency of making purchases on credit, and (2) the seller opens itself up to potential losses if its customers do not pay the sales invoice amount when it becomes due. Under the accrual basis of accounting (which we will be using throughout our discussion) a sale on credit will: 1. Increase sales or sales revenues, which are reported on the income statement, and 2. Increase the amount due from customers, which is reported as accounts receivable—an asset reported on the balance sheet. If a buyer does not pay the amount it owes, the seller will report: 1. A credit loss or bad debts expense on its income statement, and 2. A reduction of accounts receivable on its balance sheet. With respect...
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...PBL 1: TechnoMaju Sdn Bhd To promote sales, the Marketing Manager offers a one-year warranty and credit sales. These warranty costs and bad debt expense are estimated at 1% of total sales and 1% of credit sales respectively. According to Mydin, since these are estimations the accountant should just ignore them. Otherwise, the amount of profit will not be accurate. Part 1 : Learning Issues 1. What are credit sales? 2. What are warranty costs? 3. What are bad debts expenses? 4. What are the methods of accounting for bad debts expenses? 5. What are the methods to estimate bad debt expenses? 6. What are the significance of the estimation of bad debt expense and warranty cost to the financial statements? Introduction A sales promotion is an activity designed to boost the sales of a product or service. It may include an advertising campaign, increased PR activity, a free-sample campaign, offering free gifts or trading stamps, arranging demonstrations or exhibitions, setting up competitions with attractive prizes, temporary price reductions, door-to-door calling, and telemarketing. Price promotions are also commonly known as “price discounting”. These offer either (1) a discount to the normal selling price of a product, or (2) more of the product at the normal price. Increased sales gained from price promotions are at the expense of a loss in profit – so these promotions must be used with care. For TechnoMaju Sdn Bhd, the company is offering a one-year warranty...
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...Chapter 10 1. Receivables Chapter Opening Vignette Critical Thinking Challenge Questions* How are Sun-Rype’s customers different from CIBC’s? - Sun-Rype’s customers are mainly companies (grocery stores/chains/distribution centres) who buy Sun-Rype’s food and beverage products. CIBC’s customers are individuals as well as companies who purchase CIBC’s financial services/products. - There may be less risk associated with Sun-Rype’s credit customers than with CIBC’s customers since the dollar amount of CIBC’s transactions are significantly larger than Sun-Rype’s 2. Why would CIBC experience a higher rate of uncollectible accounts than SunRype does? - Sun-Rype’s primary customers would likely be in the habit of making regular purchases; they would have to pay their accounts to ensure that subsequent purchases are delivered. CIBC’s customers may include individuals or companies of a higher risk category such as car loans for individuals or companies borrowing funds for a major expansion. *The Chapter 10 Critical Thinking Challenge questions are asked on page 496 of the text. Students are reminded at the conclusion of Chapter 10, page 515 of the text, to refer to the Critical Thinking Challenge questions at the beginning of the chapter. The solutions to the Critical Thinking Challenge questions are available here in the Solutions Manual and accessible to students on the Online Learning Centre. Copyright © 2010 by McGraw-Hill Ryerson Limited. All rights reserved. 809 Fundamental...
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...information above for McGregor a. If McGregor uses the Balance Sheet Approach and estimates its bad debt for the year to be 6% of the Accounts Receivable balance, prepare the adjusting journal entry as of December 31, 2014. [54,000 * .06 = 3,240] DR CR Bad Debt Expense 3,740 Allowance For Doubtful Accounts 3,740 b. What is the Net Realizable Value of Accounts Receivable that will be reported on the December 31, 2014 Balance Sheet after the adjusting entry is posted? Accounts Receivable 54,000 Allowance for Doubtful Accounts (3,240) Net Realizable Value of AR 50,760 c. Assume, on January 8, 2015, JD Rhimes Inc. contacts McGregor Inc and says they have declared bankruptcy and will not be able to pay their Accounts Receivable debt of $2,000. Prepare the journal entry to write-off this customer’s account. DR CR Allowance For Doubtful Accounts 2,000 Accounts Receivable 2,000 d. What is the Net Realizable Value of Accounts Receivable on January 8, 2015 after the customer write off? [Assume no other activity has affected those accounts since December 31, 2014.] Accounts Receivable 52,000 Allowance for Doubtful Accounts (1,240) Net Realizable Value of AR 50,760 e. Does the write off affect the Net Realizable Value of Accounts Receivable? No f. Does the write off affect Net Income? No 2. Assume instead...
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... Study Objectives 1. Identify the different types of receivables. Explain how companies recognize accounts receivable. Distinguish between the methods and bases companies use to value accounts receivable. Describe the entries to record the disposition of accounts receivable. Compute the maturity date of and interest on notes receivable. Explain how companies recognize notes receivable. Describe how companies value notes receivable. Describe the entries to record the disposition of notes receivable. Explain the statement presentation and analysis of receivables. Questions 1, 2 Exercises 2. 3 2 1, 2, 14 1A, 3A, 4A, 6A, 7A 1B, 3B, 4B, 6B, 7B 3. 4, 5, 6, 7, 8 3, 4, 5, 6, 7 3, 4, 5, 6 1A, 2A, 3A, 4A, 5A 1B, 2B, 3B, 4B, 5B 4. 9, 10, 11 8 7, 8, 9, 14 6A, 7A 6B, 7B 5. 12, 13, 14, 15, 16 9, 10 10, 11, 12, 13 6A, 7A 6B, 7B 6. 11 10, 11, 12 7A 7B 7. 7A 7B 8. 17 12, 13 6A, 7A 6B, 7B 9. 18, 19 3, 12 14, 15 1A, 6A 1B, 6B 9-1 ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description 1A 2A 3A 4A 5A 6A 7A 1B 2B 3B 4B 5B 6B 7B Prepare journal entries related to bad debts expense. Compute bad debts amounts. Journalize entries to record transactions related to bad debts. Journalize transactions related to bad debts. Journalize entries to record transactions related to bad debts. Prepare entries for various notes receivable transactions. Prepare entries...
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... Study Objectives 1. Identify the different types of receivables. Explain how companies recognize accounts receivable. Distinguish between the methods and bases companies use to value accounts receivable. Describe the entries to record the disposition of accounts receivable. Compute the maturity date of and interest on notes receivable. Explain how companies recognize notes receivable. Describe how companies value notes receivable. Describe the entries to record the disposition of notes receivable. Explain the statement presentation and analysis of receivables. Questions 1, 2 Exercises 2. 3 2 1, 2, 14 1A, 3A, 4A, 6A, 7A 1B, 3B, 4B, 6B, 7B 3. 4, 5, 6, 7, 8 3, 4, 5, 6, 7 3, 4, 5, 6 1A, 2A, 3A, 4A, 5A 1B, 2B, 3B, 4B, 5B 4. 9, 10, 11 8 7, 8, 9, 14 6A, 7A 6B, 7B 5. 12, 13, 14, 15, 16 9, 10 10, 11, 12, 13 6A, 7A 6B, 7B 6. 11 10, 11, 12 7A 7B 7. 7A 7B 8. 17 12, 13 6A, 7A 6B, 7B 9. 18, 19 3, 12 14, 15 1A, 6A 1B, 6B 9-1 ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description 1A 2A 3A 4A 5A 6A 7A 1B 2B 3B 4B 5B 6B 7B Prepare journal entries related to bad debts expense. Compute bad debts amounts. Journalize entries to record transactions related to bad debts. Journalize transactions related to bad debts. Journalize entries to record transactions related to bad debts. Prepare entries for various notes receivable transactions. Prepare entries...
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...Alfred Auletta 16 September 2012 Professor Shahid ACC 301 CA 7-1 (Bad-debt Accounting) A. What are the deficiencies of the direct write-off method? The deficiency of the direct write-off method is that it fails to match the costs with the revenues in a specific period. It also does not show the net realizable value of receivables in the balance sheet. The only time that the direct write-off method is appropriate is when the amount that is uncollectible is deemed immaterial. B. What are the two basic allowance methods used to estimate bad debts, and what is the theoretical justification for each? The two basic allowance methods used to estimate the bad debts are the Percentage-of-sales approach and the Percentage-of-receivables approach. With the percentage-of-sales approach, the expense is getting matched with the revenue because it is showing the relation between the charge and the sale in a specific period. Using this method, it is being shown the past relationship between the sales and costs in a period. Simms Company would be anticipating for the future based on the costs and revenues. It is also known as the Income Statement Approach. When using the percentage-of-receivables approach, the company could find out what percentage of their receivables would be deemed uncollectible. The Simms Company would find out the actual value of their receivables instead of having to wait. The difference between this method and the other is the fact that...
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...receivable ledger, is created to maintain a separate account for each customer. A supplementary record, called the accounts receivable ledger, is created to maintain a separate account for each customer. To record a credit sale, one must debit Accounts Receivable—Customer Name, and credit Sales. The debit is posted to the Accounts Receivable account in the general ledger and to the customer account in the accounts receivable ledger. Many larger retailers maintain their own credit cards to grant credit to preapproved customers and to earn interest on unpaid balances. For credit card sales, sellers allow customers to use third-party credit and debit cards for several reasons: the seller does not have to make decisions about who gets credit and how much the seller avoids the risk of extending credit to customers who do not pay, the seller typically receives cash from the credit card company sooner than had it granted credit directly to customers, and a variety of credit options for customers offers a potential increase in sales volume. To make an entry for credit card sales when cash is received upon deposit of sales receipt, one must debit Cash (for the amount of sale less the credit card company charge), debit Credit Card Expense (for the fee), and credit to Sales (for the full invoice amount). If a company must remit the credit card sales receipts to the credit card company and wait for the cash payment, one must debit Accounts Receivable (for full invoice), credit Credit Card Expense...
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... | | | | | | | | | | | | | |1A | |Prepare journal entries related to bad debt expense. | |Simple | |15–20 | | | | | | | | | |2A | |Compute bad debt amounts. | |Moderate | |20–25 | | | | | | | | | |3A | |Journalize entries to record transactions related to bad debts. | |Moderate | |20–30 | | | | | | | | | |4A | |Journalize transactions related to bad debts. | |Moderate | |20–30 | | | | | | | | | |5A...
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...Week 1 – Discussion Question 1: ACC How would you describe the entries to record the disposition of accounts receivables? What is their function? How are bad debts accounted for under the direct write-off method? What are the disadvantages of this method? Companies dispose of accounts receivable for two main reasons. This may be their only reasonable source of cash, usually because they are unable to use typical borrowing methods. Also, billing and collection is costly and time-consuming, things many companies cannot afford. One of the most common ways for a company to dispose of their accounts receivable is by the method is a sale to a factor. To better explain, a factor is a finance company or back that can buy receivables from a business and then go directly to the customers and collect the payments. The factor in these cases charge fees for providing the service but the service itself can be extremely helpful to a smaller business that cannot afford the time-consuming process. As for the books, cash and fees are counted as a debit; the total of receivables purchased is recorded as a credit. This can help to eventually even out the books or accounts once debts are paid. There are two main methods for bad debts the first is the direct write-off method. It is not accepted for financial recording under the GAAP. This is mainly because the actual losses from the uncollected debts are recorded in a different period than when it occurred. This can affect financial statements...
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...Week 4: Internal Control, Cash, and Receivables - Class Activity 1. | Which one of the following is not a primary component of an internal control system? A. | Risk assessment | B. | Information and communication | C. | Monitoring | D. | Rationalization | | 2. | Which of the following is not a reason why an organization establishes a system for internal control? A. | To safeguard its assets | B. | To increase efficiency of operations | C. | To ensure compliance with laws and regulations | D. | All of these are reasons why an organization establishes a system for internal control. | | 3. | Which of the following statements is correct? A. | Control is most effective when two or three people are given responsibility for the same task. | B. | The person who has custody of assets should not perform the record keeping for the assets. | C. | The person who has custody of assets should also perform the record keeping for the assets. | D. | It is often a waste of company resources to have an employee perform independent internal verification. | | 4. | Internal auditors A. | are hired by CPA firms to audit business firms. | B. | are employees of the IRS who evaluate the internal controls of companies filing tax returns. | C. | evaluate the system of internal controls for the companies that employ them. | D. | cannot evaluate the system of internal controls of the company that employs them because they are not independent. | | 5. | Segregation...
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...Identify the different types of receivables. 1, 2 1 2. Explain how companies recognize accounts receivable. 3 2 3. Distinguish between the methods and bases companies use to value accounts receivable. 4, 5, 6, 7, 8 3, 4, 5, 6, 7 4. Describe the entries to record the disposition of accounts receivable. 9, 10, 11 5. Compute the maturity date of and interest on notes receivable. 12, 13, 14, 15, 16 6. Explain how companies recognize notes receivable. 7. Describe how companies value notes receivable. 8. Describe the entries to record the disposition of notes receivable. 17 9. Explain the statement presentation and analysis of receivables. 18, 19 Do It! Exercises A Problems B Problems 1, 2 1A, 3A, 4A, 1B, 3B, 4B, 6A, 7A 6B, 7B 1 3, 4, 5, 6 1A, 2A, 3A, 1B, 2B, 3B, 4A, 5A 4B, 5B 8 2 7, 8, 9 6A, 7A 6B, 7B 9, 10 3 10, 11, 12, 13 6A, 7A 6B, 7B 10, 11, 12 7A 7B 7A 7B 11 3 3, 12 12, 13 6A, 7A 6B, 7B 4 14 1A, 6A 1B, 6B Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only) 8-1 ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description 1A 2A Simple 15–20 Compute bad debt amounts. Moderate 20–25 3A Journalize entries to record transactions related to bad debts. Moderate 20–30 4A Journalize transactions related to bad debts. Moderate 20–30 5A Journalize entries to record transactions related to bad debts. Moderate 20–30 6A Prepare entries for various notes receivable...
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...A. What are the deficiencies of the direct write-off method? The deficiency of the direct write-off method is that it fails to match the costs with the revenues in a specific period. It also does not show the net realizable value of receivables in the balance sheet. The only time that the direct write-off method is appropriate is when the amount that is uncollectible is deemed immaterial. B. What are the two basic allowance methods used to estimate bad debts, and what is the theoretical justification for each? The two basic allowance methods used to estimate the bad debts are the Percentage-of-sales approach and the Percentage-of-receivables approach. With the percentage-of-sales approach, the expense is getting matched with the revenue because it is showing the relation between the charge and the sale in a specific period. Using this method, it is being shown the past relationship between the sales and costs in a period. Simms Company would be anticipating for the future based on the costs and revenues. It is also known as the Income Statement Approach. When using the percentage-of-receivables approach, the company could find out what percentage of their receivables would be deemed uncollectible. The Simms Company would find out the actual value of their receivables instead of having to wait. The difference between this method and the other is the fact that it does not match costs and revenues but it will report the net realizable value of the receivables...
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...Role: • An accounting advisor engaged by a lawyer to help with concerns about an earnout arrangement (payment for the purchase of a business based on performance after the sale has closed). Key users: • Ms. Kellett and Mr. Jones are the only relevant users. Ms. Kellett will use the report to assist her in assessing the earnout agreement. Key facts: • Earnout arrangement being proposed for sale of company. • Selling price will depend on earnings after the sale closes and buyer (role is working for the seller) will prepare the financial statements. • Ms. Kellett and Mr. Jones are unsophisticated financial statement users. • Financial statements have a number of “soft spots” that could lead to Mr. Jones being disadvantaged by the earnout arrangement. Constraints: • The purchaser has suggested the earnout state that the financial statements be prepared using GAAP consistently applied. A clean audit opinion would also be required. Tighter constraints are required because GAAP still provides significant leeway to the new owners that will allow them to disadvantage Mr. Jones. Objectives: • Identify soft spots in the financial statements and propose ways to protect Mr. Jones from not receiving fair compensation for his business Issues: • Possible non-arm’s length transactions. • Inuvik will be a major supplier to other companies that the buyer owns. • This is a reasonable strategy for the buyer but it creates risks for Mr. Jones because transactions between Inuvik and the other...
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