Problem 2 : The following is reported on the December 31, 2016 balance sheet of
ID: 2531268 • Letter: P
Question
Problem 2: The following is reported on the December 31, 2016 balance sheet of Romero Company:
Accounts receivable
$338,000
Less: allowance for uncollectible accounts
(21,720)
Accounts receivable, net of allowance
$316,280
Estimated Bad Debt Expense of $19,000 was recorded by Romero Company in 2016. Romero Company records reveal that Justin Baca owes the company $5,500. On January 12, 2017, Justin Baca declares bankruptcy and Romero Company will not recover any money from Justin Baca.
Required:
Explain how the 2016 estimated bad debt expense and Justin Baca’s bankruptcy affects Romero Company’s balance sheets and income statements in 2016 and 2017.
Accounts receivable
$338,000
Less: allowance for uncollectible accounts
(21,720)
Accounts receivable, net of allowance
$316,280
Explanation / Answer
As per IAS 10 Events After The Reporting Period, an event is non-adjusting event when the condition arose after the balance sheet date
In this case , Justin declares bankruptcy after the balance sheet date and hence, it is a non-adjusting event
The same can be disclosed by the way of a note if its non-disclosure would affect ability of users to make proper decisions.
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