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Allowance Method for Accounting for Bad Debts

At the beginning of 2017, EZ Tech Company's Accounts Receivable balance was $135,000, and the balance in Allowance for Doubtful Accounts was $2,300. EZ Tech's sales in 2017 were $1,010,000, 80% of which were on credit. Collections on account during the year were $650,000. The company wrote off $4,000 of uncollectible accounts during the year.

Required:

1. Identify and analyze the sales during 2017.

Activity	OperatingInvestingFinancing
Accounts	Cash Increase, Accounts Receivable Increase, Sales Revenue IncreaseCash Increase, Accounts Receivable Increase, Sales Revenue DecreaseCash Increase, Accounts Receivable Decrease, Sales Revenue IncreaseCash Increase, Accounts Receivable Decrease, Sales Revenue Decrease
Statement(s)	Balance Sheet onlyIncome Statement onlyBalance Sheet and Income Statement

How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

Bad Debt ExpenseCashPrepaid ExpenseSales RevenueUnearned RevenueNo Entry

fill in the blank 017e15f99f8df99_2

Accounts PayableAccounts ReceivableNotes PayablePrepaid ExpenseSales RevenueNo Entry

fill in the blank 017e15f99f8df99_4

fill in the blank 017e15f99f8df99_5

Accounts PayableAccounts ReceivableNotes PayablePrepaid ExpenseSales RevenueNo Entry

fill in the blank 017e15f99f8df99_7

Accounts PayableBad Debt ExpenseCashSales RevenueUnearned RevenueNo Entry

fill in the blank 017e15f99f8df99_9

fill in the blank 017e15f99f8df99_10

Accounts ReceivableAllowance for Doubtful AccountsBad Debt ExpenseSales RevenueUnearned RevenueNo Entry

fill in the blank 017e15f99f8df99_12

Accounts PayableAccounts ReceivableCashNotes PayablePrepaid ExpenseNo Entry

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Accounts PayableAccounts ReceivableCashNotes PayablePrepaid ExpenseNo Entry

fill in the blank 017e15f99f8df99_17

Accounts ReceivableAllowance for Doubtful AccountsBad Debt ExpenseSales RevenueUnearned RevenueNo Entry

fill in the blank 017e15f99f8df99_19

fill in the blank 017e15f99f8df99_20

Identify and analyze the transactions related to the collections of cash during 2017.

Activity	OperatingInvestingFinancing
Accounts	Cash Increase, Accounts Receivable IncreaseCash Increase, Accounts Receivable DecreaseCash Decrease, Accounts Receivable IncreaseCash Decrease, Accounts Receivable Decrease
Statement(s)	Balance Sheet onlyIncome Statement onlyBalance Sheet and Income Statement

How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

Accounts PayableAllowance for Doubtful AccountsBad Debts ExpenseCashSales RevenueNo Entry

fill in the blank a190e0026032f9e_2

Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsCashSales RevenueNo Entry

fill in the blank a190e0026032f9e_4

fill in the blank a190e0026032f9e_5

Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsCashSales RevenueNo Entry

fill in the blank a190e0026032f9e_7

Accounts PayableAllowance for Doubtful AccountsBad Debts ExpenseCashSales RevenueNo Entry

fill in the blank a190e0026032f9e_9

fill in the blank a190e0026032f9e_10

Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsBad Debts ExpenseSales RevenueNo Entry

fill in the blank a190e0026032f9e_12

Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsCashSales RevenueNo Entry

fill in the blank a190e0026032f9e_14

fill in the blank a190e0026032f9e_15

Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsCashSales RevenueNo Entry

fill in the blank a190e0026032f9e_17

Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsBad Debts ExpenseSales RevenueNo Entry

fill in the blank a190e0026032f9e_19

fill in the blank a190e0026032f9e_20

Identify and analyze the transactions related to the write-offs of accounts receivable during 2017.

Activity	OperatingInvestingFinancing
Accounts	Allowance for Doubtful Accounts Increase, Accounts Receivable IncreaseAllowance for Doubtful Accounts Increase, Accounts Receivable DecreaseAllowance for Doubtful Accounts Decrease, Accounts Receivable IncreaseAllowance for Doubtful Accounts Decrease, Accounts Receivable Decrease
Statement(s)	Balance Sheet onlyIncome Statement onlyBalance Sheet and Income Statement

How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item. If a contra account is decreased, it will have the effect of increasing the corresponding financial statement item.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

Accounts PayableAllowance for Doubtful AccountsBad Debts ExpenseCashNotes ReceivableNo Entry

fill in the blank 7ac34901af9bfd1_2

Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsBad Debts ExpenseNotes PayableNo Entry

fill in the blank 7ac34901af9bfd1_4

fill in the blank 7ac34901af9bfd1_5

Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsBad Debts ExpenseNotes PayableNo Entry

fill in the blank 7ac34901af9bfd1_7

Accounts PayableAllowance for Doubtful AccountsBad Debts ExpenseCashNotes ReceivableNo Entry

fill in the blank 7ac34901af9bfd1_9

fill in the blank 7ac34901af9bfd1_10

Accounts PayableAccounts ReceivableBad Debts ExpenseCashNotes ReceivableNo Entry

fill in the blank 7ac34901af9bfd1_12

Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsBad Debts ExpenseNotes PayableNo Entry

fill in the blank 7ac34901af9bfd1_14

fill in the blank 7ac34901af9bfd1_15

Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsBad Debts ExpenseNotes PayableNo Entry

fill in the blank 7ac34901af9bfd1_17

Accounts PayableAllowance for Doubtful AccountsBad Debts ExpenseCashNotes ReceivableNo Entry

fill in the blank 7ac34901af9bfd1_19

fill in the blank 7ac34901af9bfd1_20

2. Identify and analyze the adjustments to recognize bad debts assuming that (a) bad debts expense is 4% of credit sales and (b) amounts expected to be uncollectible are 5% of the year-end accounts receivable.

a. Identify and analyze the adjustments to recognize bad debts assuming that bad debts expense is 4% of credit sales.

Activity	OperatingInvestingFinancing
Accounts	Allowance for Doubtful Accounts Increase, Bad Debts Expense IncreaseAllowance for Doubtful Accounts Increase, Bad Debts Expense DecreaseAllowance for Doubtful Accounts Decrease, Bad Debts Expense IncreaseAllowance for Doubtful Accounts Decrease, Bad Debts Expense Decrease
Statement(s)	Balance Sheet onlyIncome Statement onlyBalance Sheet and Income Statement

How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item. If a contra account is decreased, it will have the effect of increasing the corresponding financial statement item.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsBad Debts ExpenseCashNo Entry

fill in the blank 3e541ffec04104f_2

Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsBad Debts ExpenseNotes PayableNo Entry

fill in the blank 3e541ffec04104f_4

fill in the blank 3e541ffec04104f_5

Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsBad Debts ExpenseNotes PayableNo Entry

fill in the blank 3e541ffec04104f_7

Accounts PayableAccounts ReceivableAllowance for Doubtful AccountsBad Debts ExpenseCashNo Entry

fill in the blank 3e541ffec04104f_9

fill in the blank 3e541ffec04104f_10

b. Identify and analyze the adjustments to recognize bad debts assuming that amounts expected to be uncollectible are 5% of the year-end accounts receivable.

Activity	OperatingInvestingFinancing
Accounts	Allowance for Doubtful Accounts Increase, Bad Debts Expense IncreaseAllowance for Doubtful Accounts Increase, Bad Debts Expense DecreaseAllowance for Doubtful Accounts Decrease, Bad Debts Expense IncreaseAllowance for Doubtful Accounts Decrease, Bad Debts Expense Decrease
Statement(s)	Balance Sheet onlyIncome Statement onlyBalance Sheet and Income Statement