Use the following information to answer the next two questions: Harris Company uses the allowance method of handling its credit losses. It estimates credit losses at 1.5% of credit sales, which were $2,700,000 during the year. On December 31, the Accounts Receivable balance was $475,000, and the Allowance for Doubtful Accounts had a balance of $30,600 before adjustment. Indicate the effect (increase / decrease) that recording the bad debt expense for the year will have on the company's assets, liabilities, and equity, respectively. Assets Liabilities + Equity Select one: a. Decrease, No Change, Decrease b. Increase, No Change, Decrease C. Increase, No Change, Increase O d. Decrease, Decrease, No Change O e. Increase, Decrease, Increase What would be the Net Realizable Value of Harris Company's Accounts Receivable at year end, after the adjusting entry for bad debts has been recorded? Select one: O a. 434,500 O b. 403,900 O c. 465,100 O d. 444,400

Question

Aarav Pacheco

Business

2 March, 22:35

Use the following information to answer the next two questions: Harris Company uses the allowance method of handling its credit losses. It estimates credit losses at 1.5% of credit sales, which were $2,700,000 during the year. On December 31, the Accounts Receivable balance was $475,000, and the Allowance for Doubtful Accounts had a balance of $30,600 before adjustment. Indicate the effect (increase / decrease) that recording the bad debt expense for the year will have on the company's assets, liabilities, and equity, respectively. Assets Liabilities + Equity Select one: a. Decrease, No Change, Decrease b. Increase, No Change, Decrease C. Increase, No Change, Increase O d. Decrease, Decrease, No Change O e. Increase, Decrease, Increase What would be the Net Realizable Value of Harris Company's Accounts Receivable at year end, after the adjusting entry for bad debts has been recorded? Select one: O a. 434,500 O b. 403,900 O c. 465,100 O d. 444,400

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Answers (1)

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Marley Griffith · Answer 1

a. Decrease, No Change, Decrease

b. 403,900

Explanation:

a. For recording the bad debt expense, the asset and equity would be decreased as it reduce the balance of assets and the equity whereas the liabilities side has no change

b. The computation of the net realizable value of accounts receivable is shown below:

= Ending balance of accounts receivable - Allowance for Doubtful Accounts - bad debt expense

= $475,000 - $30,600 - $40,500

= $403,900

The calculation of the bad debt expense is shown below:

= Credit sales * estimated percentage

= $2,700,000 * 1.5%

= $40,500