Martin MFG company uses balance sheet approach to calculate allowance for doubtful accounts and bad debt...

Martin MFG company uses balance sheet approach to calculate allowance for doubtful accounts and bad debt expense. Current policy is to reserve 20% gross accounts receivable as an allowance for uncollectible accounts.

Martin MFG company issued 10% stated rate bonds in 2020. Effective market rate of interest for these bonds is 8%.

Select all statements that are true regarding the information above. Ignore taxes and any cost of goods sold.

Reducing the percentage of gross accounts receivable reserved in the allowance for uncollectible accounts will increase net income

Increasing the percentage of gross accounts receivable reserved in the allowance for uncollectible accounts will increase net income

Reducing the amount of accounts receivable written off by $1,000 will increase net income

Increasing the amount of accounts receivable written off by $1,000 will increase net income

If given option to deliver inventory in either 2020 or 2021 waiting to deliver inventory to customers until 2021 will increase revenue in 2020

If given option to deliver inventory in either 2020 or 2021 delivering inventory to customers in 2020 will increase revenue in 2020

Using income statement approach to calculate bad debt expense will always result in lower bad debt expense versus the balance sheet approach

Using direct write off method to calculate bad debt expense will always result in lower bad debt expense versus the balance sheet approach

Increasing the stated rate of the bonds would have increased the price of the bonds at issuance

Increasing the market rate used to price the bonds would have increased the price of bonds at issuance

Present value of bonds issued is higher than face value

Present value of bonds issued is lower than face value

Solutions

Expert Solution

The following statements are considered to be true-

1. Reducing the percentage of gross accounts receivable reserved in the allowance for uncollectible accounts will increase net income.
Reason- Allowance is a contra asset account. Any decrease in allowance would result in increase in net income.

3. Reducing the amount of accounts receivable written off by $1,000 will increase net income
Reason- Write off would reduce the allowance balance. Reeducing write off will increase allowance account and less bad debt expense is required for adjusting entry.

6. If given option to deliver inventory in either 2020 or 2021 delivering inventory to customers in 2020 will increase revenue in 2020.
Reason- Delivey in 2020 means sale occuring in 2020. Hence, there is increase in revenue in 2020

8. Using direct write off method to calculate bad debt expense will always result in lower bad debt expense versus the balance sheet approach
Reason- Direct method approach will be entered on actual bad debt basis. So, there may be delay in recognizing actual bad debts.

9. Increasing the stated rate of the bonds would have increased the price of the bonds at issuance.
Reason- The stated rate of bond is directly proportional to the price of the bond.

11. Present value of bonds issued is higher than face value
Reason- When market rate is lower than stated rate, the bond is priced at premium.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Reformulating Allowance for Doubtful Accounts and Bad Debt Expense Merck & Company reported the following from...

Reformulating Allowance for Doubtful Accounts and Bad Debt Expense Merck & Company reported the following from its 2016 financial statements. $ millions 2013 2014 2015 2016 Accounts receivable, net $7,185 $6,627 $6,485 $7,017 Allowance for doubtful accounts 153 160 172 201 a. Compute accounts receivable gross for each year. $ millions 2013 2014 2015 2016 Accounts receivable, gross $Answer 7,338 $Answer 6,787 $Answer 6,657 $Answer 7,218 b. Determine the percentage of allowance to gross account receivables for each year. Round...

Reformulating Allowance for Doubtful Accounts and Bad Debt Expense Merck & Company reported the following from...

Reformulating Allowance for Doubtful Accounts and Bad Debt Expense Merck & Company reported the following from its 2016 financial statements. $ millions 2013 2014 2015 2016 Accounts receivable, net $7,666 $7,105 $6,965 $7,499 Allowance for doubtful accounts 170 179 191 225 a. Compute accounts receivable gross for each year. $ millions 2013 2014 2015 2016 Accounts receivable, gross $Answer $Answer $Answer $Answer b. Determine the percentage of allowance to gross account receivables for each year. Round answers to two decimal...

The balance in Allowance for Doubtful Accounts will directly impact the end-of-period adjustment for the bad...

The balance in Allowance for Doubtful Accounts will directly impact the end-of-period adjustment for the bad debt expense when using which of the following methods? direct write-off method allowance method based on aging the receivables accrual method declining value method Indications that an account may be uncollectible include all of the following except the customer files for bankruptcy the customer is making small but regular payments the customer closes its business the customer cannot be located The operating expense recorded...

Short answer The Company uses the balance sheet approach to estimate bad debt expense. Credit sales...

Short answer The Company uses the balance sheet approach to estimate bad debt expense. Credit sales for the period were $10 million. The beginning balance in the allowance for doubtful accounts was a credit balance of $44,300. During the year, $41,000 of receivables were written off. The aging schedule suggests that the ending balance in the allowance for doubtful accounts is $51,500. What was bad debt expense for the period? Credit sales were $950,000. Cash flow from operating activities was...

The use of the allowance for doubtful accounts approach: a. should not be used if the...

The use of the allowance for doubtful accounts approach: a. should not be used if the customers are highly concentrated. b. increases the allowance for doubtful accounts when an account is written off. c. results in a matching of uncollectible accounts expense with the related sales that led to the expense. d. does not recognize an expense when the allowance is set up

Ervin Company uses the allowance method to account for uncollectible accounts receivable. Bad debt expense is...

Ervin Company uses the allowance method to account for uncollectible accounts receivable. Bad debt expense is established as a percentage of credit sales. For 2021, net credit sales totaled $5,400,000, and the estimated bad debt percentage is 1.50%. No previously written-off accounts receivable were reinstated during 2021. The allowance for uncollectible accounts had a credit balance of $51,000 at the beginning of 2021 and $44,500, after adjusting entries, at the end of 2021. Required: 1. What is bad debt expense for 2021...

1)The allowance for doubtful accounts is reported as a contra-asset on the balance sheet Select one:...

1)The allowance for doubtful accounts is reported as a contra-asset on the balance sheet Select one: True False 2)When goods are shipped FOB destination, the revenue from the sale is recognized on the shipment date. Select one: True False 3)Tangible long-lived productive assets differ from intangible long-lived productive assets in that tangible assets have physical substance whereas intangible assets have no physical substance. Select one: True False 4)Treasury stock is a corporation's own stock that was issued and then repurchased,...

Mel's Hardware uses the allowance method to determine their bad debt expense. The allowance for bad...

Mel's Hardware uses the allowance method to determine their bad debt expense. The allowance for bad debts is based on the balance in the accounts receivable account. Mel's hardware uses the rate of 0.75% of accounts receivable to determine the appropriate balance in the allowance for doubtful accounts. The data collected from Mel's Hardware is as follows. A/R: $49,477.00 Allowance for doubtful accounts: debit $350.00 Credit sales: $144,554.00 Bad Debt Expense: -0-

Winstead & Company has Accounts receivable of $120,000 and a Debit balance of Allowance for Doubtful...

Winstead & Company has Accounts receivable of $120,000 and a Debit balance of Allowance for Doubtful Accounts $1,000 in the Allowance for Doubtful Accounts. and .The firm estimates that two percent of the current accounts and five percent of the past due account will prove to be uncollectible. The adjusting entry to provide for the bad debts expenses under the aging method should be for what amount?

Penny Company uses the aging approach to estimate bad debt expense. The ending balance of each...

Penny Company uses the aging approach to estimate bad debt expense. The ending balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, $285,000; (2) up to 120 days past due, $50,000; and (3) more than 120 days past due, $21,000. Experience has shown that for each age group, the average loss rate on the amount of the receivables at year-end due to uncollectibility is (1) 2.5 percent, (2) 12...

Subjects