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Prepare responses to the following assignment from the e-text, financial accounting: Tools for Business Decision Making 4th ed., by Kimmel, Weygandt and Kieso

Chapter 8 Question 3 and 4

3. What are the essential features of the allowance method of accounting for bad debts?

4. Lauren Anderson cannot understand why the cash realizable value does not decrease when an uncollectible account is written off under the allowance method. Clarify this point for Lauren.

Chapter 8: Exercise E8-5

Hachey Company has accounts receivable of $95,100 at March 31st, 2007. An analysis of the accounts shows these amounts

Balance, March 31

Month of Sale 2007 2006

March $65,000 $75,000
February $12,600 $8,000
December & January $10,100 $2,400
November & October $7,400 $1,100

Credit terms are 2/10, n/30. At March 31st, 2007, there is a $2,200 credit balance in Allowance for Doubtful prior to adjustment. The company uses, the percentage of receivables basis for estimating uncollectible accounts. The company's estimates for bad debts are shown on page 402.

Estimated Percentage
Age of Accounts uncollectible

Current 2%
1-30 days past due 7%
31-90 days past due 30%
Over 90 days 50%

Instructions

(a) Determine the total estimated uncollectibles.
(b) Prepare the adjusting entry at March 31st, 2007, to record bad debts expense.
(c) Discuss the implications of the changes in the aging schedule from 2006 to 2007.

Prepare responses to the following assignment from the e-text, Financial and Managerial Accounting: The Basis for Business Decision 13th ed., by Williams, Haka, and Bettner

Chapter 9: Exercise E9.9

For several years, a number of Food Lion, Inc., grocery stores were unprofitable. The company closed, and continues to close, some of these locations. It is apparent that the company will not be able to recover the cost of the assets associated with the closed stores. Thus, the current value of these impaired assets mist be written down (see the Case in Point on page 381).

A recent Food Lion income statement reports a $9.5 million charge against income pertaining to the write-down of impaired assets.

(a) Explain why Food Lion must write down the current carrying value of its unprofitable stores.

(b) Explain why the recent $9.5million charge to write down these impaired assets is considered a non-cash expense.

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3. What are the essential features of the allowance method of accounting for bad debts?
1) Uncollectible A/R are estimated and matched against sales in the same period.
2) Estimated uncollectible accounts are debited to bad debt expense and credited to allowance for doubtful accounts by an adjustment at the end of each accounting period.
3) Actual uncollectibles are debited to allowance for doubtful accounts and credited to A/R when the account is written off.

4. Lauren Anderson cannot understand why the cash realizable value does not decrease when an uncollectible account is written off under the allowance method. Clarify this point for Lauren.
The decrease in the realizable cash value happens when the estimated uncollectibles are journalized at the end of the accounting period. The transaction reduces A/R and the allowance for doubtful accounts by the same amount as the account that is being written off, and assumed no longer collectible. The cash realizable ...

Solution Summary

Prepare responses to the following assignment from the e-text, financial accounting: Tools for Business Decision Making 4th ed., by Kimmel, Weygandt and Kieso

Chapter 8 Question 3 and 4

3. What are the essential features of the allowance method of accounting for bad debts?

4. Lauren Anderson cannot understand why the cash realizable value does not decrease when an uncollectible account is written off under the allowance method. Clarify this point for Lauren.

Chapter 8: Exercise E8-5

Hachey Company has accounts receivable of $95,100 at March 31st, 2007. An analysis of the accounts shows these amounts

Balance, March 31

Month of Sale 2007 2006

March $65,000 $75,000
February $12,600 $8,000
December & January $10,100 $2,400
November & October $7,400 $1,100

Credit terms are 2/10, n/30. At March 31st, 2007, there is a $2,200 credit balance in Allowance for Doubtful prior to adjustment. The company uses, the percentage of receivables basis for estimating uncollectible accounts. The company's estimates for bad debts are shown on page 402.

Estimated Percentage
Age of Accounts uncollectible

Current 2%
1-30 days past due 7%
31-90 days past due 30%
Over 90 days 50%

Instructions

(a) Determine the total estimated uncollectibles.
(b) Prepare the adjusting entry at March 31st, 2007, to record bad debts expense.
(c) Discuss the implications of the changes in the aging schedule from 2006 to 2007.

Prepare responses to the following assignment from the e-text, Financial and Managerial Accounting: The Basis for Business Decision 13th ed., by Williams, Haka, and Bettner

Chapter 9: Exercise E9.9

For several years, a number of Food Lion, Inc., grocery stores were unprofitable. The company closed, and continues to close, some of these locations. It is apparent that the company will not be able to recover the cost of the assets associated with the closed stores. Thus, the current value of these impaired assets mist be written down (see the Case in Point on page 381).

A recent Food Lion income statement reports a $9.5 million charge against income pertaining to the write-down of impaired assets.

(a) Explain why Food Lion must write down the current carrying value of its unprofitable stores.

(b) Explain why the recent $9.5million charge to write down these impaired assets is considered a non-cash expense.

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