Question

The following is a portion of the current assets section of the balance sheets of Avanti's, Inc., at December 31, 2020 and 2019: 12/31/20 12/31/19 Accounts receivable, less allowance for bad debts of $9,447 and $17,784, respectively $173,838 $ 222,787 Required: a. If $11,333 of accounts receivable were written off during 2020, 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.) Bad debt expense b. The December 31, 2020, Allowance account balance includes $3,002 for a past due account that is not likely to be collected. This account has not been written off. (1) If it had been written off, will there be any effect of the write-off on the working capital at December 31, 2020? Yes O No 21 If it had been written off. Will there be anv effect of the write-off on net income and ROI for the vear ended December 31, 2020?

Answer 1

a)

Allowance for Bad debts
Bad debts written off	$11333	12/31/19 Beg. Bal.	$17784
		Bad debts expense
		12/31/20 End. Bal.	$9447

Bad debts expense= 12/31/20 End. Bal.+Bad debts written off-12/31/19 Beg. Bal.

= $9447+11333-17784= $2996

Bad debt expense

$2996

b) If it had been written off, there will be no effect of the written off on the working capital at Dec 31, 2020 because when the company write off the bad debts the accounts receivable and allowance accounts balance both will decreases with the same amount. So, there will be no change in the working capital at Dec 31, 2020

So, the answer is option B) No.

2) Both the net income and ROI will not effect when the company write off because when the company write off the amount that is not likely to be collected there will be no change in the revenue and expenses of the company by which there will be no change in the net income of the company. In the same way ROI is calculated by dividing the net income from average total assets and when the company write off, the net income and the average total assets of the company will remain same. So, there will be no effect of the write off on both Net income and ROI.

So, the answer is No.

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