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sleet_krkn [62]
3 years ago
6

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
d. Decrease, Decrease, No Change
e. Increase, Decrease, Increase
Business
2 answers:
barxatty [35]3 years ago
7 0

Answer:

a. Decrease, No Change, Decrease

Explanation:

This can be explained as follows

New Allowance for Doubtful Accounts = $2,700,000 × 1.5% = $40,500

Increase in Allowance for Doubtful Accounts = $40,500 - $30,600 = $9,900

The increase in the Allowance for Doubtful Accounts will reduce the Accounts Receivable balance by $9,900 because it will be added to the Allowance for Doubtful Accounts balance of $30,600 and affect Accounts Receivable as follows:

Accounts Receivable balance on December 31 after adjustment = $475,000 – ($30,600 + $9,900) = $434,500.

The increase of $9,990 in Allowance for Doubtful Accounts will decrease Accounts Receivable which an asset, and will also reduce equity because the $9,900 will be used to reduce the earning or retained earning which is an equity item. This does not and will not have any effect on the liability item.

Therefore, correct option is Decrease in asset, No Change in liabilities, Decrease in equity.

Arte-miy333 [17]3 years ago
4 0

Answer:

a)Decrease, No Change, Decrease

b) -Correct Answer is Option 'B' $ 403,900

--Workings

Accounts receivables, gross  $475,000

Less:  

Allowance account unadjusted balance $30,600  

Bad Debt Expenses [2700000 x 1.5%] $40,500  

Adjusted balance of Allowance account  $71,100

Net Realizable value of Accounts receivables [475000 - 71100] $403,900

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Answer:

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The dividend paid to preferred stock holders is a function of dividend rate, par value and number of preferred stocks outstanding.

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3 0
1 year ago
The stockholders' equity of Oriole Company at July 31, 2021 is presented below: Common stock, par value $20, authorized 400,000
WINSTONCH [101]

Answer: $1,717,200

Explanation:

The amount of the debit to retained earnings as a result of the declaration and distribution of this stock dividend will be:

= 15% × 159,000 × $72

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3 0
3 years ago
The following situations should be considered independently. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $
taurus [48]

Answer:

Explanation:

(1)

FV = PV x (1 + r)^N  

FV = $75,000

PV = $35,000

r = 8%

75,000 = 35,000 x (1.08)^N

(1.08)N = 2.1429

N ln 1.08 = ln 2.1429

N = ln 2.1429 / ln 1.08 = 0.33 / 0.033 = 10 years

(2)

FV = Annual payment, A x PVA

FV = $43,700

n = 6 years

A = 8,000

43,700 = 8,000 x PVA

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(3)

PV = Annual payment, A x PVIFA (r%, n years)

PV = $18,000

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A = $18,000 / 4.4859 = $4,012.57

4 0
3 years ago
Honest Abe’s is a chain of furniture retail stores. Integral Designs is a furniture maker and a supplier to Honest Abe’s. Honest
valentinak56 [21]

Answer:

The cost of capital according to CAPM method for Abe will be 12.46%

Their project will be evaluate with this rate.

Explanation:

It will use the CAPM to evaluate the project, as there is no debt, the WACC is not needed.

Ke= r_f + \beta (r_m-r_f)  

rf = risk free 0.035

rm = market rate  

premium market = (market rate - risk free) = 0.08

beta(non diversifiable risk) 1.12

Ke= 0.035 + 1.12 (0.08)

Ke 0.12460 = 12.46%

3 0
2 years ago
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