Question

Events that occur after the December 31, 2021 balance sheet date, but before the balance sheet is issued, and provide additional evidence about conditions that existed at the balance sheet date and affect the realizability of accounts receivable should be a. discussed only in the MD&A (Management's Discussion and Analysis) section of the
annual report.
b. disclosed only in the Notes to the Financial Statements.c.used to record an adjustment to Bad Debt Expense for the year ending December 31, 2021. d.used to record an adjustment directly to the Retained Earnings account.

Answer 1

Answer:

C) used to record an adjustment to Bad Debt Expense for the year ending December 31, 2021.

Explanation:

Retained earnings account cannot be adjusted after December 31 (or whenever the balance must be done), but bad debt expense can be adjusted, specially if it increases.

Generally a company estimates it bad debt expense, the different methods used to estimate bad debts (allowance, percentage or aging methods) are used more commonly than the direct write-off method. But as every estimate, they can be close to reality or not.

E.g. some companies might have a very important client that represents a large portion of their credit sales, and if suddenly that large client that had always paid on time defaults, that event must be included in the balance sheet since the bad debts expense will increase significantly.