Exercise 7-10 The chief accountant for Swifty Corporation provides you with the

Question

Exercise 7-10 The chief accountant for Swifty Corporation provides you with the following list of accounts receivable written off in the current year Date Customer March 31 June 30 September 30 December 31 E. L. Masters Company Stephen Crane Associates Amy Lowell's Dress Shop R. Frost, Inc. Amount $8,420 8,680 7,340 8,103 Swifty follows the policy of debiting Bad Debt Expense as accounts are written off. The chief accountant maintains that this procedure is appropriate for financial statement purposes because the Internal Revenue Service will not accept other methods for recognizing bad debts. All of Swifty's sales are on a 30-day credit basis. Sales for the current year total $2,258,400. The balance in Accounts Receivable at year-end is $78,000 and an analysis of customer risk and charge-off experience indicates that 11% of receivables will be uncollectible (assume a zero balance in the allowance) year (b) By what amount would net income differ if bad debt expse was computed using the percentage-of-receivables approach? Assume that accounts written off were for sales in a prior Net income would be $ under the percentage-of-receivables approach LINK TO TEXT

Explanation / Answer

To calculate the adjusting entry amount of the entry for bad debt expense under the percentage-of-receivables method we would use: USD Balance in account receivable account          78,000 Allowance account has no balance                   -   11% of the receivables will be uncollectiable Bad Debt expense (11% of 78,000)            8,580 Net income would differ by $8580 of Bad debt expense

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