Assignment
The Ethan Company provides you with the following information on December 31, 2015 as it prepares to close its books for the year
• Accounts Receivable Balance (before write offs): $7,891,500
• Allowance for Doubtful Accounts Balance (before write offs): 212,000
• Accounts deemed to be uncollectible: 230,000
• Bad Debt rate based on % of AR balance: 4.0%
• Net Credit Sales 2015: $42,000,000
• Bad Debt Rate Based on % of Credit Sales: 1%
Required:
1) Assuming Ethan Co uses the balance sheet (AR balance) approach:
a. Record the write off of uncollectible accounts.
b. What is the new allowance for doubtful accounts balance after all adjustments.
c. What is the bad debt expense, record the entry.
d. What is the new Net Realizable Value of the receivable on the balance sheet.
2) Repeat the exercise assuming Ethan Co uses the income statement approach if you can follow the notes. If not we will do part 2 in class.