On october 17 of the current year, a company determined that a customer\'s accou
ID: 2474753 • Letter: O
Question
On october 17 of the current year, a company determined that a customer's account recievable was uncollectible and that the account should be written off. Assuming the allowance method is used to account for bad debts, what effect will this write-off have on company's net income and total assets? Decrease in net income; no effect on total assets. No effect on net income; no effect on total assets. Decrease in net income; decrease in total assets. Increase in net income; no effect on total assets. No effect in net income; decrease on total assets. Which of the following is an accounting procedure that(1) estimates and reports bad debts expense from credit sales during the period the sales are recorded, and (2) reports accounts receivable at the estimated amount of cash to be collected? Allowance method of accounting for bad debts. Aging of notes receivable. Adjustment method for uncollectible debts. Direct write-off method of accounting for bad debts. Cash basis method of accounting for bad debts. Giorgio Italian Market bought $4.000 worth of merchandise from Food Suppliers and signed a 90-day, 6 % promissory note for the S4.000. Food Supplier's journal entry to record the sales transaction is: Debit Accounts Receivable $4.000; credit Sales $4.000 Debit Notes Receivable $4.000; credit Sales $4,000 Debit Accounts Receivable $4.060; credit Sales $4.060 Debit Notes Receivable $4.060; credit Sales $4.060 Debit Notes Receivable $4.000; debit Interest Receivable $60; credit Sales S4.060 Depreciation: Measures the decline in market value of an asset. Measures physical deterioration of an asset. Is the process of allocating the cost of a plant asset to expense. Is an outflow of cash from the use of a plant asset. Is applied to land. Beckman Enterprises purchased a depreciable asset on October 1. Year 1 at a cost of $100.000. The asset is expected to have a salvage value of $20.000 at the end of its five-year useful life If the asset is depreciated on the double-declining-balance method, the asset's book value on December 31. Year 2 will be; $36.000 $42.000 $54.000 $I6.000 $90.000 A benefit of using an accelerated depreciation method is that. It is preferred by the tax code. It is the simplest method to calculate. It yields larger depreciation expense in the early years of an asset's life. It yields a higher income in the early years of the asset's useful life. The results are identical to straight-line depreciation.Explanation / Answer
Solution 22:
Under the allowance method to account for bad debt expense, write off of any uncollectible accounts receivable is done by debiting the "Allowance for doubtful accounts" and crediting the " Accounts receivables" account. Therefore this write would have no effect on the net income but it decrease the total assets by reducing the accounts receivable.
Hence option E is correct.
Solution 23:
"Allowance method of accounting for bad debts" describes the point 1 and 2.
Hence option "A" is correct.
Solution 24:
The entry will be debit note receivable $4000 and credit sales $4000. Interest on note receivale will be recorded as Interest revenue and it is not included in value of sales.
Hence option "B" is correct.
Solution 25:
Depreciation is the process of allocating the cost of a plant asset to expense.
Hence option "C" is correct.
Solution 26:
Rate of straightline depreciation = straighline depreciation / cost
= ($100,000/5) / $100,000 =20%
Rate for double declining balance method = 20*2 = 40%
Depreciation on Dec 31 year 1 = initial cost*rate*period remaining in current year/12 = $100,000 * 40% * 3/12 = $10,000
Depreciation expense on dec 31 year2 = book value* 40%
= ($100,000 - $10,000) * 40% = $36,000
Book value before depreciation of year 2 on dec 31= $100,000 - $10,000 = $90,000
Book value After depreciation of year 2 on dec 31 = $90,000 - $36,000 = $54,000
Solution:
A benefit of using an accelerated depreciation method is that it yields larger depreciation expense in the early years of an asset's life.
Hence option "C" is correct.
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