Question

The following is a portion of the current asset section of the balance sheets of HiROE Co., at December 31, 2014 and 2013:

  

	December 31, 2014	December 31, 2013
Accounts receivable, less allowance for uncollectible      accounts of $8,000 and $3,900, respectively	150,900	130,500

equired:
a.	If bad debts expense for 2014 totaled $10,200, what was the amount of accounts receivable written off during the year? (Hint: Use the T-account model of the Allowance account, plug in the three amounts that you know, and solve for the unknown.) What is the accounts recievable written off? b. The December 31, 2014, Allowance account balance includes $3,200 for a past due account that is not likely to be collected. This account has not been written off. (1) If it had been written off, will there be any effect of the write off on the Working capital at December 31, 2014? Choose one: A. No B. Yes    (2) If it had been written off, will there be any effect of the write off on Net income and ROI for the year ended December 31, 2014? Choose one A No B Yes      c. The level of HiROE's sales in 2014 is probably higher as compared to 2013. Choose one A. True B. False     d.1 Calculate the ratio of the Allowance for Uncollectible Accounts balance to the Accounts Receivable balance at December 31, 2013 and 2014. (Enter your answers as a percentage rounded to 1 decimal place (i.e., 3.2).)
	Fill in the Blanks Ratio for 2013 A. % Ratio for 2014 B. %

Answer 1

Req 1.
Allowance for uncollectible accounts
Accounts receivable		6,100	Balance		3,900
(balancing figure)			Bad debt expense		10200
			Balance		8000
Amount written off: 6100
Req b-1
Answer is No effect on Working capital
Req b-2
Answer is No effect on Net income and ROI
Note: With the amount written off, net Accounts receivable remain same.
Hence, no effect on working capital, net income and hence no effect on ROI
Req c
Answer is TRUE.
This is Probable that the sales would have beem higher as the level of accounts receivable and allowance has been increased
Req d-1
			2013	2014
Net Accounts receivable			130500	150900
Add: Allowance			3900	8000
Gross Accounts receivable			134400	158900
Allowance for uncollectible			3900	8000
Divide: Gross Accounts receivable			134400	158900
% of Allowance for Gross AR			2.90%	5.04%