Exercise

7-1
1)
Estimated
Amount Percent Estimated Amount
Category in dollars Uncollectable Uncollectable
Current 500000 10% 50000
Past due:
1-30 days 200000 30% 60000
30-60 days100000 100000 75% 75000
Total 800000 185000

Credit in Balance for

Allowance for
Doubtful Accounts
2) after adjustment 185000

Credit in Balance for

Allowance for
Doubtful Accounts
before adjustment 20000
Bad Debt Expense 165000

Journal Entry
Debit Credit
Bad Debt Expense 165000
Allowance for
Doubtful Accounts 165000
Exercise
7-3
1) a)
Debit Credit
Bad Debt Expense 16680
Allowance for Doubtful Accounts 16680

b) Allowance for Doubtful Accounts Starting Balance 2600

Allowance for Doubtful Accounts Ending Balance 19206

Bad Debt Expense 16606

Debit Credit
Bad Debt Expense 16606
Allowance for Doubtful Accounts 16606

2) Allowance for Doubtful Accounts Starting Balance 2600

Debit Credit
Bad Debt Expense 16680
Allowance for Doubtful Accounts 16680

The answer will not change as Bad debt expense is

2% of Net Sales for part a)
Allowance for Doubtful Accounts Ending Balance 19206

Debit Credit
Bad Debt Expense 21806
Allowance for Doubtful Accounts 21806
Debit Credit
2600
Bad Debt
Expense
19206
Problem
7-1 A
Journal
1) Entries
Sales Collections

Accounts
Receivabl
e 630000 Cash 502500
Cash 157500

Sales Accounts
Revenue 787500 Receivables 502500

2) a) Accounts Receivable Allowance for Doubtful Accounts Bad Debt Expense

105000 1950 18900
502500 18900
630000 3000
3000
229500 17850

b) Accounts Receivable Allowance For Doubtful Accounts Bad Debt Expense

105000 1950 14820
502500 14820
630000 3000
3000
229500 13770

Net
Realizable
3) a) Value = Ending Balance of Accounts Receivable - Ending Balance of Allowance for Doubtful Accounts
211650

Net
Realizable
b) Value = Ending Balance of Accounts Receivable - Ending Balance of Allowance for Doubtful Accounts
215730

4) If bad debt expense increases, ending balance of allowance for doubtful accounts increase thereby decreasing Net

Similarly if write-offs increases, ending balance of allowance for doubtful accounts decreases thereby increasing Ne
 Write-offs

Allowance
for
Doubtful
Accounts 3000

Accounts
Receivabl
es 3000

Bad Debt Expense

18900

Bad Debt Expense

14820

wance for Doubtful Accounts

wance for Doubtful Accounts

ease thereby decreasing Net Realizable Value

reases thereby increasing Net Realizable Value

Problem 7-2 A

1) Category Amount
Current 200000
Past due
Less than one month 60300
One to two months 35000
Over two months 45000
Totals 340300

2) Rough Stuff will have to write off 40000 dollars out of 45000 dollars.

3) New balance for Accts Receivable 300300

Allowance for doubtful accounts 41075
Net Realizable value 259225

Balance Sheet
Current Asset Accounts R
 Estimated Estimated Amount Uncollectable
10.0% 20000

25.00% 15075
35.00% 12250
75.00% 33750
81075

Balance Sheet
259225
Exercise
8-3

Double Declining Balance Rate 40

Accumula
Rate In Beginning ted Ending
Percentag Book Depreciati Depreciati Book
1) Year e Value on on Value
2012 40% 6000 2400 2400 3600
2013 40% 3600 1440 3840 2160
2014 40% 2160 864 4704 1296

2015 40% 1296 518.4 5222.4 777.6

2016 40% 777.6 177.6 5400 600

2)
Depreciation Expense 2400
Accumulated Expense 2400

Since forklift technology is

changing rapidly, they need to
consider the double declining
balance method and also to
3) minimize taxable income
Acquisitio
n Cost-
Residual
Value

In 2016 =
(6000-
600)-
SUM(F5:F
8)
Exercise
8-5
1)
Year 2012 2013 2014 2015 2016 2017
Depreciation Expense 8000 8000 15500 15500 15500 15500
Accumulated Depreciat 8000 16000 31500 47000 62500 78000
Book Value 72000 64000 48500 33000 17500 2000

2) Yes, the depreciation was changed due to change in estimate and auditors of the company have to be ca
f the company have to be careful that the change made is not to manipulate earnings. In the year 2012 and 2013 the corrected depreciati

13000
2013 the corrected depreciation is 13000.
Problem
8-3

1) Straight Line MACRS

Accumula
ted Diff in
Depreciati Accumula Depreciati
Depreciati on using ted on
on for Straight Depreciati Depreciati Expense
Book Straight Line on for on using for each
Year Value Line Method MACRS MACRS year
Year 1 33600 5600 5600 6720 6720 -1120
Year 2 33600 5600 11200 10750 17470 -5150
Year 3 33600 5600 16800 6450 23920 -850
Year 4 33600 5600 22400 3870 27790 1730
Year 5 33600 5600 28000 3870 31660 1730
Year 6 33600 5600 33600 1940 33600 3660

2)
Yes, we can use both straight line and MACRS methods, it's legal and we get the same total depreciatio
the first few years and then it reduces compared to straight-line depreciation expense., so higher depre
be paid in the initial years for the company while using MACRS. But for the straight-line method fewer t
to MACRS depreciation expense from Ye
get the same total depreciation expense using both methods. As MACRS has a high depreciation expense in
tion expense., so higher depreciation charge reduces taxable income in the early years and less tax needs to
e straight-line method fewer taxes need to be paid in the later years as depreciation value is high compared
depreciation expense from Year 3 to Year 6.
Prob 8-6

1) and 2)

Original Cost for truck and Tool Chest and

Side Racks for Ladders

Accumula
Beginning Depreciati ted
Book on Depreciati
a) Value Expense on

2012 18800 4500 4500

2013 18800 4500 9000

2014 4500 4500 13500

2015 4500 18000

Business
c) License
Depreciati
on
Expense 458.3333333

Another
Old Truck
d) Sold
Depreciati
on
Expense 1400

Depreciati
on
Expense
for 5
years till
2012 7000
 Book
Value
When
Sold 5000

3) Balance Sheet
Assets
Old Truck 14300

10 cases
of paint
trays and
roller
covers 0
Store
Cabinets 533.3333333

Ladders
and
scaffoldin
g 1800
License 1041.666667
Another
truck 4800
 Beginning Depreciati
Book on Accumulated Other
b) Assets Value Expense Depreciation Expenses

10 cases
of paint
trays and
2012 roller
covers 200 0 0 200
Store
Cabinets 600 66.66667 66.66666667

Ladders
and
scaffoldin
g 2400 600 600
200