Q.2.The balance sheet of VF Corporation the large apparel company that recently
ID: 2436475 • Letter: Q
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Q.2.The balance sheet of VF Corporation the large apparel company that recently purchased Nautica Enterprises, showed accounts receivable at January 4, 2003 of S 587,859,000 net of allowances of $48,27,000. Suppose a large discount chain that owed VF $2 million announced bankruptcy on January 5, 2003. VF decided that chances for collection were virtually zero and immediately wrote off the account. Show the accounts receivable and allowances account balance after the write-off, and explain the effect of the write-off on income for the year beginning January,5 2003Explanation / Answer
On 4th January,2003 VF Corporation has accounts receivable balance (Net of allowances) valuing = $ 587,859,000
On the same date Provision for Bad Debt Balance is $ 48,27,000
On 5th of January,2005 one of the large discount chain become bankrupt and hence amount receivable from it become un collectable i.e total amount collectable from it become Bad Debt and the same was written off immediately as bad debt.
Journal Entry for Writting of Bad Debt from Debtor(Receivable) is:
Bad Debt A/c Dr $ 20,00,000
To Debtor A/C $ 20,00,000
(Being receivable considered as un collectable written off directly from receivable)
Again for transfering the balance in bad debt a/c the following Joural is required:
Profit & Loss A/c Dr $ 20,00,000
TO Bad DebtA/C $ 20,00,000
Therefore Balance In Receivable Account will be= $ 587.859 million - $ 2 million=585.859 million
and the balance in Provision for Bad Debt A/ c will be $4.827 million
Due to this write offf of receivable the Profit of VF Corporation will be reduced by $ 2 million in the current account.
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