Question

Following are the December 31, 2008, balances of Accounts Receivable and Allowance for Uncollectible Accounts for Easton Hammer Corporation (EHC).
Accounts Receivable........................................... $6,400,000
Allowance for Uncollectible Accounts
(credit balance).................................................... 225,000
During 2009, EHC wrote off the following accounts:
Required:
(a) Prepare the journal entries that were made to record the write-offs of the Cantole and Bono accounts.
(b) At year-end 2009, the company’s accountant estimates that EHC should record an estimate of $327,000 for uncollectible accounts receivable. Prepare the appropriate adjusting journal entry to record uncollectible accounts expense at year-end.
(c) Suppose that the accountant in part (b) was too conservative in his estimate. Instead of uncollectible accounts receivable of $327,000, the company actually has uncollectible accounts of $218,000. How will the accountant’s overstatement of year-end estimated uncollectible accounts receivables affect EHC’s income statement and balance sheet for the year in question? How may this overstatement affect the decisions of third parties, such as bankers and investors, who rely on those financial statements?
(d) Will the assumed overstatement referred to in part (c) affect EHC’s financial statements for the following year? If so, explain how. If not, explain why not.
(e) Is it ever permissible to intentionally overstate expenses in a company’s financial statements? Defend your answer and refer to related accounting concepts or principles from Chapter 2.
(f) Assume Myka Bono paid EHC $730 on August 14, 2010. How would this receipt be journalized by EHC?


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  • CreatedMarch 27, 2015
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