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In: Accounting

Explain how each of the following is presented in (1) a multiple-step income statement and (2)...

Explain how each of the following is presented in (1) a multiple-step income statement and (2) a statement of cash flows a.Sale of marketable securities at a loss b. adjusting entry to create (or increase) the allowance for doubtful accounts c. Entry to write off an uncollectable account against the allowance, d. Adjusting entry to increase the balance in Marketable securities account to a higher market value (assume these investments are classified as available for sale securities)

Solutions

Expert Solution

a. Sale of Marketable Securities at loss

Income Statement

The gain or loss of the sale is recorded on the income statement under the operating income segment as a line item denoted as "Gain (Loss) on Trading Securities."

Statement of Cash Flow

It is shown under "Cash flow from Investing Activity"

b. Adjusting entry to create (or increase) the allowance for doubtful accounts

Date Account Title Debit Credit
June 30, 2017 Bad Debts Expense xxxx
Allowance for Doubtful Accounts xxxx

Income Statement

The only impact that the allowance for doubtful accounts has on the income statement is the initial charge to bad debt expense when the allowance is increased.

Statement of Cash Flow

No treatment in direct method. The indirect method starts with net income for the quarter. Then you subtract or add parts of the income statement that don't involve cash i.e. allowance for doubtful debts.

c. Entry to write off an uncollectable account against the allowance

Income Statement

There will be no impact on income statement.

Statement of Cash Flow

Writing bad debts off involves no cash, so there is no treatment for it on the cash flow statement

d. Adjusting entry to increase the balance in Marketable securities account to a higher market value

Income Statement

No impact as unrealised gain or loss on mark to market are shown in stakeholder's equity.

Statement of Cash Flow

The cash flow statement would show the changes in the fair market value of the investments as a reconciling item in the operating section of the statement.

ekkarill92 answered 2 years ago
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