In an effort to boost sales in the current year, Roy's Gym has implemented a new program
Question:
...........................Membership Revenues............. Accounts Receivable
Last year................................ $100,000.............................. $ 5,000
Current year .............................300,000..............................160,000
Arnold, the owner, realizes that many members have not paid their annual membership fees by the end of the year. However, Arnold believes that no allowance for uncollectible accounts should be reported in the current year because none of the nonpaying members' accounts have proven uncollectible. Arnold wants to use the direct write-off method to record bad debts, waiting until the end of next year before writing off any accounts.
Required:
1. Do you agree with Arnold's reasoning for not reporting any allowance for future uncollectible accounts? Explain.
2. Suppose that similar programs in the past have resulted in uncollectible accounts of approximately 75%. If Arnold uses the allowance method, what should be the balance of Allowance for Uncollectible Accounts at the end of the current year?
3. Based on your answer in Requirement 2, for what amount will total assets and expenses be misstated in the current year if Arnold uses the direct write-off method? Ignore tax effects.
Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...
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Related Book For
Financial Accounting
ISBN: 9780078110825
2nd Edition
Authors: J. David Spiceland, Wayne Thomas, Don Herrmann
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