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Q: In your own words, what is the theoretical justification of the allowance method as contrasted with the direct write-off method of accounting for bad debts? A: The theoretical superiority of the allowance method over the direct write-off method of accounting for bad debts is two-fold. First, since revenue is considered to be recognized at the point of sale on the assumption that the resulting receivables are valid liquid assets merely awaiting collection, periodic income will be overstated to the extent of any receivables that eventually become uncollectible. The proper matching of revenue and expense requires that gross sales in the income statement be partially offset by a charge to bad debt expense that is based on an estimate of the receivables arising from gross sales that will not be converted into cash. Second, accounts receivable on the balance sheet should be stated at their estimated net realizable value. The allowance method accomplishes this by deducting from gross receivables the allowance for doubtful accounts. The latter is derived from the charges for bad debt expense on the income statement.
Using the data for home selling prices attached, test a realtor's claim that the average age of all homes in the area from which the random sample is drawn from is less than 30 years. Assume the distribution of ages of homes follow an approximatel..
Lark Corporation is a calendar year taxpayer. At the beginning of the current year, Lark has accumulated E & P of $330,000. The corporation incurs a deficit in current E & P of $460,000 that accrues ratably throughout the year. On June 30, Lark di..
evaluate the logic of reflecting key person life insurance in the operating activities of the cash flow statement and determine if this presentation is misleading to users of the financial statements.
Suppose that nominal output rises from $12.5 trillion in 2005 to $13 trillion in 2006. Assume also that the GDP deflator rises from 100 to 105.
The company has had over $300,000 in interest-bearing debt outstanding the third year, at a weighted average rate of 9 percent. How much interest for the third year is capitalized?
However, it is also projected for Project B that in years three and four there will be an additional capital outlay of $100,000 for each year. Compute the NPV, IRR, Payback for both projects and select the best project. Show your work.
If the cost per equivalent unit for the period is $3.70 for material and $1.20 for labor and overhead, what is the balance of the ending work in process inventory account?
In 2005, 509 Brunswick Avenue was sold for $550,000. A reasonable allocation of this amount is considered to be 75% to the building and 25% to the land.
Squid reported net income of $100,000 for 2005. Minority interest income that will appear in the consolidated income statement for 2005 is
Prepare a cash distribution plan as of September 30, 2009, showing how much cash each partner will receive if the offer to sell the assets is accepted.
Toledo Corporation's common stock is selling for $50 per share on the New York Stock Exchange. Toledo Corporation's price-earnings ratio is:
Assume further that the FICA tax rate was 7.5% (on earnings up to $100,000) and federal income tax to be withheld was $235. Determine the gross pay for the week.
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