You are the accountant for London Imports and Exports. The company imports and exports food and candy items throughout the world. The company is finalizing its 3rd quarter financial results. All adjustments have been made for the 3rd quarter except the adjustment for Bad Debts Expense. The preliminary 3rd quarter results along with the 1st and 2nd quarter results are shown below.
London Imports and Exports |
|||
Q3 |
Q2 |
Q1 |
|
Net Sales |
$135,800 |
$135,460 |
$130,100 |
Cost of Goods Sold |
(58,400) |
(58,250) |
(55,990) |
Gross Profit |
$77,400 |
$77,210 |
$74,110 |
Selling, General, & Admin. Expenses |
(56,560) |
(53,975) |
(53,690) |
Bad Debts Expense |
-------- |
(6,050) |
(4,200) |
Income Before Income Tax |
20,840 |
17,185 |
16,220 |
Income Tax Expense |
(5,620) |
(5,155) |
(5,020) |
Net Income |
$15,220 |
$12,030 |
$11,200 |
The CFO asked you to look at the Allowance for Doubtful Accounts
and use the Aged Accounts Receivable to calculate the adjustment
needed for bad debts expense for the 3rd quarter. The CFO stated
that he knows the customers are slower at paying this quarter but
he wants the Allowance for Doubtful Accounts to not be increased;
in fact he’s encouraging you to decrease it so it has an adjusted
balance of $8,000. He wants you to play around with the estimated
bad debt loss rates to get the number he wants for the adjusted
balance of the Allowance account. You are confused, so you decide
to analyze the Allowance for Doubtful Accounts, and you came up
with the following summary of the T account below:
Allowance for Doubtful Accounts |
|
7900 Jan. 1 Balance Forward |
|
Q1 Write Offs 4110 |
4200 Q1 Bad Debts Estimate |
7990 March 31 Adjusted |
|
Q2 Write Offs 4120 |
6050 Q2 Bad Debts Estimate |
9920 June 30 Adjusted |
|
Q3 Write Offs 4030 |
-------- |
5890 September 30 Unadjusted |
AGING OF ACCOUNTS RECEIVABLE SCHEDULE:
Number of Days Unpaid |
0-30 Days |
31-60 Days |
Over 60 Days |
Total |
Total Accounts Receivable |
$10,000 |
$35,000 |
$78,000 |
$123,000 |
Estimated Uncollectible % |
1% |
8% |
12% |
Answer the following questions:
1. What is the problem with the Controller asking you to "play around with the estimated bad debt loss until you get it to work"?
2. If you were to record the bad debts expense based on what you learned in accounting, what amount would you record and how did you calculate this?
3. If you were to record the bad debts expense based on what the controller wants, what amount would you record and how did you calculate this?
4. Is there any evidence of unethical behavior in this case? Thoroughly explain your answer. Be sure to mention how net income would be affected based on your answers to #2 and #3 and how this would affect stakeholders. State what you believe is the ethical course of action.
You are the accountant for London Imports and Exports. The company imports and exports food and...
Caspar Company began 2018 with a balance of $10,000 in the allowance for doubtful accounts. All of Caspar’s sales are made on account and Caspar makes a quarterly provision for bad debts at the rate of 2% of sales. Quarterly sales in 2018 were as follows: First quarter $200,000 Third quarter $500,000 Second quarter $300,000 Fourth quarter $400,000 Actual bad accounts written off in the current year were as follows: First quarter $3,000 Third quarter $8,000 Second quarter $7,000 Fourth...
At December 31, 2021, Cullumber Imports reported this information on its balance sheet. Accounts receivable $640,000 Less: Allowance for doubtful accounts 41,000 During 2022, the company had the following transactions related to receivables. 1. Sales on account $3,060,000 2. Sales returns and allowances 50,000 3. Collections of accounts receivable 2,760,000 4. Write-offs of accounts receivable deemed uncollectible 42,000 5. Recovery of bad debts previously written off as uncollectible 20,000 Prepare the journal entries to record each of these five transactions....
At December 31, 2017, Uli Imports Inc. reported this information on its balance sheet. Accounts receivable Less: Allowance for doubtful accounts $610,000 42,000 During 2018, the company had the following summary transactions related to receivables and sales. Uli uses the perpetual inventory system. 1. Sales on account amounted to $2,520,000. The cost of the inventory sold was $1,990,800. 2. Sales returns and allowances with a total sales price of $38,000 and a cost of $30,020 were restored to inventory. 3....
please help with these accounting problems! all questions please and thank you! 6. An aging of a company's accounts receivable indicates that $9,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $2,400 credit balance, the adjustment to record bad debts for the period will require a A) debit to Bad Debt Expense for $9,000. B) debit to Allowance for Doubtful Accounts for $6,600. C) debit to Bad Debt Expense for $6,600. D) credit to Allowance for...
Your company has $3,700,000 in credit sales during 2011. The beginning balance of the allowance for doubtful accounts is $3,600 and the company writes off $600 in bad debts during the year. (a)Calculate the estimated doubtful accounts using the aging of accounts receivable method given that $1,520,000 of the credit sales are not yet due (estimated that 0.3% are uncollectible), $345,000 are 1-60 days late (estimated that 2.60% are uncollectible) and $10,000 are over 60 days late (estimated that 32%...
CALCULATOR PRINTER VERSION BACK NEXT Question 8 At December 31, 2016, Blue Spruce Imports reported this information on its balance sheet. Accounts receivable $627,200 Less: Allowance for doubtful accounts 37,300 During 2017, the company had the following transactions related to receivables 1. Sales on account $2,936,400 2. Sales returns and allowances 80,000 3. Collections of accounts receivable 2,528,500 4. Write-offs of accounts receivable deemed uncollectible 41,620 Prepare a tabular summary that includes the following accounts: Cash, Accounts Receivable, Allowance for...
At December 31, 2021, Oriole Imports reported this information on its balance sheet. Accounts receivable Less: Allowance for doubtful accounts $620,000 42,000 During 2022, the company had the following transactions related to receivables. 1 Sales on account 2. Sales returns and allowances 3. Collections of accounts receivable 4. Write-offs of accounts receivable deemed uncollectible 5. Recovery of bad debts previously written off as uncollectible $2,810,000 63,000 2,510,000 44,000 15,000 Your answer is correct. Prepare the journal entries to record each...
A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the current year, management estimated that $15,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a debit balance of $375. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense? 15,7501 Bad Debts Expense Allowance for Doubtful Accounts...
The following selected amounts are reported on the year-end unadjusted trial balance report for a company that uses the percent of sales method to determine its bad debts expense. Accounts receivable $ 426,000 Debit Allowance for Doubtful Accounts 1,440 Debit Net Sales 2,290,000 Credit All sales are made on credit. Based on past experience, the company estimates 2.0% of credit sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record...
COMMUNICATING IN PRACTICE O P2 @p3 BTN 9-2 As the accountant for Pure-Air Distributing, you attend a sales managers' meeting devoted to a discussion of credit policies. At the meeting, you report that bad debts expense is estimated to be $59,000 and accounts receivable at year-end amount to $1,750,000 less a $43,000 allowance for doubtful accounts. Sid Omar, a sales manager, expresses confusion over why bad debts expense and the allowance for doubtful accounts are different amounts. Write a one-page...