Question
In: Accounting
The carrying amount of the Accounts Receivable is $19,000 before the write off of a $2,500...
The carrying amount of the Accounts Receivable is $19,000 before the write off of a $2,500 account. What is the carrying amount after the write off?
Question 28 options:
|
$21,500 |
|
|
$19,000 |
|
|
$16,500 |
|
|
$2,500 |
Solutions
Expert Solution
Correct option c. $ 16,500
Carrying amount after the write off = Carrying amount before write off - Write off
= $ 19,000 - $ 2,500
= $ 16,500
Journal entry for write off:
| Accounts title and explanation | Debit | Credit |
| Bad Debts | $ 2,500 | |
| Accounts receivables | $ 2,500 |
Bad debts debited - Expense
Accounts receiavable credited - decrease in asset
The above answer is sloved based on company is following direct write off method.
Alternative answer can be possible if company follows allowance method:
Under allowance method write off entry is as follows:
| Accounts title and explanation | Debit | Credit |
| Bad Debts | $ 2,500 | |
| Allowance for Doubtful account | $ 2,500 |
Under both of method it does not affect incomme statement as Bad debt is getting debited.
However, Under allowance method we not going to decrease (credit) accounts receivable instead of that we credited to allowance for doubtful accounts.
So, if the company follows allowance method there will no change in accounts receivable balance. Thus, Carrying amount after write off will be $ 19,000.
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Assets:
Thompson Inc.
Panna Corporation
Carrying Amount
Carrying Amount
Fair value
Cash
$400,000
$10,000
$10,000
Accounts receivable
80,000
25,000
22,000
Inventory
100,000
70,000
75,000
Plant
500,000
165,000
175,000
Patents
100,000
25,000
25,000
Trade marks
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-
20,000
Goodwill
120,000
10,000
10,000
Total Assets
1,300,000
305,000
Liabilities and Equity:
Current liabilities
$160,000
55,000
60,000
Long-term liabilities
100,000
65,000
60,000
Common shares (At $10 per share)
1,000,000
100,000
Retained earnings
40,000
85,000
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Panna Corporation
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Carrying Amount
Fair value
Cash
$400,000
$10,000
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Accounts receivable
80,000
25,000
22,000
Inventory
100,000
70,000
75,000
Plant
500,000
165,000
175,000
Patents
100,000
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25,000
Trade marks
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20,000
Goodwill
120,000
10,000
10,000
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305,000
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Current liabilities
$160,000
55,000
60,000
Long-term liabilities
100,000
65,000
60,000
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1,000,000
100,000
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40,000
85,000
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