Reference no: EM132904594

Problem 1: The collections manager for Ralphs Office Supplies has recently discovered that a long-time customer declared bankruptcy about six months after making a substantial purchase of office supplies. The sale was "booked" in FY2019 but the bankruptcy occurred in FY2020. The purchase totaled $2,500 and none of the purchase amount is expected to be collected. After a brief discussion with Ralph's chief accountant, the entire $2,500 receivable is written off. What is the likely effect on the firm's FY2020 Financial Statements.

Group of answer choices

Option 1: Ralph's Account Receivable and Allowance for Bad Debts will both be reduced by $2,500 for FY2020

Option 2: The FY2020 Financial Statements will not be impacted but the FY2019 Financial will be adjusted to correct for the uncollectible account.

Option 3: Ralph's Bad Debt expense account for FY2020 will be increased by $2,500 on the Balance Sheet, and Revenues reduced by $2,500 on the Income Statement

Option 4: Ralphs FY2020 Bad Debt Expense will be increased by$2,500 on the Income Statement and the FY2020 Retained Earnings on the Balance Sheet will be increased by $2,500

Option 5: Ralph's FY2020 Balance Sheet and Income Statement will include a note reporting the $2,500 write-off but Balance Sheet and Income Statement for FY2020 will not be effected

Option 6: Ralph's FY2020 Allowance for Bad Debts will be reduced by $2,500 and the the FY2019 Income Statement will be restated to increase the Bad Debt expense by $2,500