Estimating and Recording Bad Debt Estimates and Write-offs; Reporting of Accounts Receivable

At December 31, 2020, its annual year-end, the accounts of Sun Systems Inc. show the following.

1. Sales revenue for 2020, $468,000, of which one-sixth was on account.
2. Allowance for doubtful accounts, balance December 31, 2019, $2,340 credit.
3. Accounts receivable, balance December 31, 2020 (prior to any write-offs of uncollectible accounts during 2020), $46,930.
4. Uncollectible accounts to be written off, December 31, 2020, $2,730.
5. Aging schedule at December 31, 2020, showing the following breakdown of total accounts receivable, excluding amounts to be written off.

Required

a. Prepare the 2020 entry to write off the uncollectible accounts.

b. Prepare the 2020 adjusting entry to record bad debt expense for each of the following separate assumptions concerning expected bad debt loss rates. Note: Treat each of the following scenarios separately, they are independent of one another.

1. Bad debt expense is based on credit sales, 1.5%. (Hint: See p. 8-19: Alternative to Estimating Net Realizable Value)

2. The Allowance for Doubtful accounts is based on total receivables at year-end, 2.5%.

3. The Allowance for Doubtful accounts is based on aging schedule: not past due, 0.5%; past due 1–60 days, 1%; and past due over 60 days, 8%.

4. Bad debt expense is based on direct write-off method (assume entry in part a has not been recorded).

c. Prepare the 2020 balance sheet disclosure relating to accounts receivable for each assumption 1 through 4 of part b.

a.

b. Note: Treat each scenario separately, they are independent of one another.

1.

2.

3.

4.

c.  

Note: Do not use negative signs with your answers.

Below are Lebnas Corp.’s 2019 income statement and comparative balance sheet at 12/31/2019 and 12/31/2018.

Additional information:

1. On December 31, 2018, Lebnas acquired 25% of Island Co.’s common stock for $609,000. On that date, the carrying value of Island’s assets and liabilities, which approximated their fair values, was

$2,435,000. Island reported income of $319,000 for the year ended December 31, 2019. No dividend income was received by Lebnas on Island’s common stock during the year 2019.

2. During 2018, Lebnas loaned $797,500 to POI Co., an unrelated company. POI made the first semi-annual principal repayment of

$72,500, plus interest at 10%, on December 31, 2018. POI is current on the loan as of December 31, 2019.

3. On January 2, 2019, Lebnas sold equipment costing $145,000, with a carrying amount of $44,950 for cash.

4. On December 31, 2019, Lebnas entered into a finance lease for a new factory. The present value of the annual rental payments is

$1,232,500, which equals the fair value of the building. Lebnas will make the first rental payment of $174,000 on 1/2/2020.

Note: The capitalized leased asset under agreement is included in Property, Plant and Equipment on the balance sheet.

5. Depreciation expense of $230,550 is included in Cost of Goods Sold.

6. Lebnas declared and paid cash dividends as follows.

       2019                   2018       

Declared Paid Amount

December 15, 2019

February 28, 2020

$145,000

December 15, 2018

February 28, 2019

$87,000

Required: Prepare a statement of cash flows for Lebnas Corp. for the year ended 12/31/2019, using the indirect method and good form.

Lebnas Corporation Balance Sheet

As of 12/31 …

Lebnas Corporation Income Statement For the year …

*Includes depreciation expense.

Sparky, Inc. presented the following select balance sheet accounts for Plant, Property & Equipment as well as Intangibles as of December 31, 2018:

The following information was reported in Sparky’s 10K filing as of December 31, 2018:

The equipment was purchased for $420,000 on October 1, 2017. It has an expected service life of 10 years and $32,000 salvage value. Sparky uses the Double-Declining Balance method for this class of asset.

The patent was acquired on January 1, 2018 and at that time had an estimated remaining useful life of 10 years.

During 2019, the following transactions and events may have affected Sparky’s long-lived assets:

Using the above information, answer each of the following questions:

a.

Determine the amount of the Impairment Loss (if any) Sparky would report for the Equipment as of December 31, 2019:

b.Assume that early in 2020, Sparky determined that the equipment will only remain productive through December 31, 2021 and changed to the straight-line method for this asset. The salvage value was determined to be $10,075. Determine Depreciation Expense (if any) Sparky would record for this equipment as of December 31, 2020:

In a problem you're computing labor productivity (also known as worker productivity) for Germany. in U.S. dollars. They are very prosperous, like the U.S. The number you come up with is $900,000. Is this a reasonable value?

The average U.S. growth rate since 2008 has been 1.5% per year. Using the rule of 72, how long will it take for the size of the U.S. economy to quadruple at this growth rate?

Explain the determinates of U.S foreign policy. Describe and analyze how these factors influence U.S. foreign policy in one of the following regions:

1. The Middle East
2. Asia
3. Russia
4. Africa
5. Latin America

What do you think about investing in foreign stocks? Are they as safe as U.S. stocks? Are they as profitable as U.S. stocks? What are the personal risks? Be sure to back up your opinions with data.

If the nominal interest rates in the U.S. and Euro zone are 3% and 2%, respectively, and the inflation rate in the U.S. in the coming year is expected to be 7%. What would be the expected inflation rate in the Euro zone?