Reference no: EM134021
Question :
1. What are the required features of the allowance method of accounting for bad debts?
2. Lauren Anderson can't understand why the cash realizable value does not decrease when an uncollectible account is written off under the allowance technique. Clarify this point for Lauren.
Evaluate bad debt expense, and purpose the adjusting entry.
3 Hachey Company has accounts receivable of $95,100 at March 31, 2007. An analysis of the accounts shows these amounts.
A
Balance, March 31
Month of Sale
2007
2006
March
$65,000
$75,000
February
12,600
8,000
December and January
10,100
2,400
November and October
7,400
1,100
A
$95,100
$86,500
Credit terms are 2/10, n/30. At 31st March, 2007, there is a $2,200 credit balance in Allowance for Doubtful Accounts prior to adjustment. The company uses the percentage of receivables basis for evaluating uncollectible accounts.
1.
Age of Accounts
Estimated Percentage Uncollectible
Current
2%
1-30 days past due
7
31-90 days past due
30
Over 90 days
50
2. Instructions
a) Evaluate the total estimated uncollectibles.
b) Purpose the adjusting entry at March 31, 2007, to record bad debts expense.
c) Show the implications of the changes in the aging schedule from 2006 to 2007.
The Write-Down of Impaired Assets
For several years, a number of Food Lion, Inc., grocery stores were unbeneficial. The company closed, and continues to close, some of these locations. It is obvious that the company will not be able to recover the cost of the assets connected with the closed stores. Thus, the existing value of these impaired assets must be written down.
A current Food Lion income statement reports a $9.5 million charge against income pertaining to the write-down of impaired assets.
Explain why Food Lion must write down the current carrying value of its unprofitable stores.
Describe why the current $9.5 million charge to write down these impaired assets is considered a noncash expense.