Reference no: EM132981965

Question - 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.

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

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

C. 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.

D. 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.

E. 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.

F. 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.