During the second year of operations. Shark Company found itself in financial difficulties. The entity decided to use the accounts receivable as a means of obtaining cash to continue operations. On July 1, 2016, the entity sold P 1,500,000 of accounts receivable for cash proceeds od P1,390,000. No bad debt allowance was associated with these accounts. On December 15, 2016, the entity assigned the remainder of its accounts receivable, P5,000,000 as of that date, as collateral on a P2,500,000, 12% annual interest rate loan from Finance Company. The entity received P2,500,000 less a 2% finance charge. None of the assigned accounts had been collected by the end of the year. It is estimated that 10 % of accounts receivable would be uncollectible. The entity revealed the following data on December 31, 2016: Accounts receivable, excluding factored and assigned accounts 1,000,000 Accounts receivable assigned 5,000,000 Accounts receivable—factored 1,500,000 Allowance for bad debts before adjustment 100,000 What total amount should be reported as accounts receivable on December 31, 2016? a. 7,500,000 b. 6,000,000 c. 5,000,000 d. 1,000,000 2. What amount should be recognized as bad debts expense for 2016? a. 600,000 b. 500,000 c. 650,000 d. 0
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
During the second year of operations. Shark Company found itself in financial difficulties. The entity decided to use the accounts receivable as a means of obtaining cash to continue operations. On July 1, 2016, the entity sold P 1,500,000 of accounts receivable for cash proceeds od P1,390,000. No bad debt allowance was associated with these accounts. On December 15, 2016, the entity assigned the remainder of its accounts receivable, P5,000,000 as of that date, as collateral on a P2,500,000, 12% annual interest rate loan from Finance Company. The entity received P2,500,000 less a 2% finance charge. None of the assigned accounts had been collected by the end of the year. It is estimated that 10 % of accounts receivable would be uncollectible.
The entity revealed the following data on December 31, 2016:
Accounts receivable,
excluding factored and assigned accounts 1,000,000
Accounts receivable assigned 5,000,000
Accounts receivable—factored 1,500,000
Allowance for
- What total amount should be reported as accounts receivable on December 31, 2016?
a. 7,500,000
b. 6,000,000
c. 5,000,000
d. 1,000,000
2. What amount should be recognized as bad debts expense for 2016?
a. 600,000
b. 500,000
c. 650,000
d. 0
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