Access the Wiki Art Gallery (WAG) instructional case in Connect and read the case in sufficient depth to answer the following questions. 1. What method for recording bad debts does WAG use and does this method conform to generally acceptable accounting principles?
a. WAG uses the direct write-off method, which is not in accordance with GAAP.
b. WAG uses the allowance method with estimates based on aging of receivables, which is in accordance with GAAP.
c. WAG uses the allowance method with estimates based on percentage of sales, which is in accordance with GAAP.
d. WAG uses the allowance method with estimates based on percentage of sales, which is not in accordance with GAAP.
2. Which of the following suggests WAG has not adequately allowed for bad debts in 2011?
a. WAG has changed its bad debt estimation percentage between 2010 and 2011.
b. WAG has changed its bad debt estimation method between 2010 and 2011.
c. WAG has calculated bad debts on artwork sales but not artist fees.
d. WAG has calculated bad debts on artist fees but not artwork sales.
3. WAG wrote off uncollectible customer accounts in 2011. Using information in Note 2 of the financial statements, determine the total amount of the 2011 write-off and indicate whether this amount was greater than, equal to, or less than the amount of estimated bad debts recorded in 2011.
a. WAG wrote off $ 300 in 2011, which is equal to the amount of bad debts estimated in 2011.
b. WAG wrote off $ 250 in 2011, which is less than the amount of bad debts estimated in 2011.
c. WAG wrote off $ 50 in 2011, which is less than the amount of bad debts estimated in 2011.
d. WAG wrote off $ 347 in 2011, which is greater than the amount of bad debts estimated in 2011.
4. Calculate the number of days to collect in 2011 and explain what it suggests about the collect-ibility of the amount reported as net accounts receivable.
a. The number of days to collect was 3.7, which suggests WAG is unlikely to collect the amount reported as net accounts receivable.
b. The number of days to collect was 98.1, which suggests WAG is unlikely to collect the amount reported as net accounts receivable.
c. The number of days to collect was 3.7, which suggests WAG is likely to collect the amount reported as net accounts receivable.
d. The number of days to collect was 98.1, which suggests WAG is likely to collect the amount reported as net accounts receivable.
5. What would be the financial impact if WAG were to increase its estimate of bad debts in 2011?
a. WAG’s bad debt expense would increase.
b. WAG’s net income would decrease.
c. The value of WAG’s shares would decrease.
d. All of the above.