Reference no: EM131036652

Interpreting Bad Debt Disclosures

Daimler chrysler is the largest industnal group headquartered in Germany Best known as the manufactures of Mercedes-benz and Chrysler ems and trucks, it also manufacture products in the held of rail systems. aerospace. propulmon, defense, and tnformation technology. In a recent filing pun want to in listing on the New York Nock Exchange. it disdoked the following information concern ing its allowance for dimhtful sesounts (in millions of German marks devoted MD:

Required:

1. Record summary 7011MaI OrdneS related to bad debts for the surreal yeas.
2. If Datmletauysler had Millen off an additional 1,5110 million of aCCOUMS receivable dunng the period, how would nrewables. mi. and net Income has, been affected? Explain why.
Inferring Bad Debt Yhite-Offs and Cash Collections from Customers
Ishoomft des clops. produces. and markets a wide range oleonmotet software including the Windows operatmg as stem. On a recent balance them. Microsoft reported the tollowmg In10.0,110.1.1boul net Saks revenue and .1000011, receivable

Current Prior
Year Lear
Accounts trcen abk, ten of alkawanges of 576 and $47 S 33& $ 270
Net revenues 3.753 2.759

According to its Foos 1OK. hfierosoll mooted bail deb: expense 01 $47 and did not reinstate any previously whiten-off attOutilf dunng the anneal yew.

Required:
1. What amount of had debts was written off during the current year?
2. Assuming that all of Microsoft's sales during the period were on open account solve for cash collected from customers for the current year.

Determining the Impart of Uncollectible Accounts on Income and Working Capital

A recent annual report foe Sears contained the following information at the end of fiscal year.

                                                                Year 1
Accounts loceisabk                             $7,022,075,000
Allowance for doubtful accounts                (86,605,000)

                                                        $6,935,470,000

A footnote to the financial statements disclosed that uncolleetible accounts amounting to 555.000.000 were written off as bad during year I and 569.000.000 during year 2. Assume that the tax rate for Sears was 30 percent.

Required:
1. Determine the bad debt expense for year 2 based on the preceding facts.
2. Working capital is defined as current assets minus current liabilities. llow was Sears's working capital affected by the write-off of 569.000,000 in uncollectibk accounts during year 2? What impact did the recording of bad debt expense have on working capital in year 2?
3. How was net Income affected by the 569.000.000 write-off throng year 2' What impact did recording bad debt expense have on net Income for year 27

E6-15 Computing Bad Debt Expense Using Aging Analysis

Brown Cow dairy uses the aging apporch to estimate bad debt expense. The balance of each account receivable is aged on the basis of three rink maxis as follows: ( I) not yet due s12000.42) tip to 120 Brown Cow Daily uses the aging approach guestimate had debt expense. The balance of each account days past due 55000. and (3) more than I20 days past due 53,000. Ex penence has shown that for each age group, the average loss rate on the minium of the receivables at year-end due to uneollectability is (1) 2 percent. (2) 10 percent. and (3) 30 percent, respectively. At December 31. 2005 (end of the cur¬rent year). the Allowance for Doubtful Accounts balance was $300 (credit) before the end-of-period adjusting entry is made.

Required:

What amount should be recorded as Bad Debt Expense for the current year

E6-16 Recording and Reporting a Bad Debt Estimate Using Aging Analysis 104 Arias Company uses the aging approach to eantriate bad debt expense. 1 he balance oleach account re¬ceivable is aged on the basis of three tune penods as follows. II t not yet due 565000.12) up to 180 days past due $10,000, and (3) more than 180 days pax due 54000. Experience has shown that for each age group. the avenge loss rate on the amount of the teceivabks at year-end due to uncollec¬tability is (I) 1 percent. (2) IS percent. and (3)40 percent, respectively. At December 31. 2005 (end of the current year). the Allowance for Doubtful Accounts balance was 5100 (credit) before the end-of.. (mord irdjusung entry is made.

Required:

1. Prepare the appropriate had debt expense adjusting entry for the year 2005.

2. Show how the various accounts related to accounts receivable should he shown on the December 31. 2005 balance sheet.

E6-17 Recording, Reporting, and Evaluating a Bad Debt Estimate

104 During 2009, Martin's Camera Shop had sales revenue of $170,000, of which Sg5,000 was on credit. At the start of 2009, Accounts Receivable showed a $ 1 COX) debit balance, and the Allowance for Doubtful Accounts showed an $800 credit balance. Collections of accounts receivable during 2009 amounted to $63,000.
Data during 2009 follows:

a. On December 31, 2009, an Account Receivable O. Doc) of $1.500 from a prior year was deter¬mined to be uncollectiblc; therefore, it was written off immediately as a had debt.
b. On December 31. 2009, on the basis of experience, a decision was made to continue the account¬ing policy of basing estimated bad debt losses on 2 percent of credit sales for the year.

Required:
1. Give the required journal entries tor the two items on December 31, 2009 (end of the accounting period).
2. Show how the amounts related to Accounts Receivable and Bad Debt Expense would be reported on the income statement and balance sheet for 2009. Disregard income tax considerations,
3. On the basis of the data available, does the 2 percent rate appear to he reasonable? Explain.