You loaned $ 25,000 to a close friend to buy an off-road vehicle. You planned to have him sign a note receivable, with the off-road vehicle becoming collateral, or security, for the note in case your friend failed to pay you. However, in the excitement and rush to get the vehicle, you forgot to have your friend sign the note and you forgot to make the arrangements for collateral. Nothing was signed prior to your giving your friend the cash. How should this transaction have been handled? What are the possible consequences of this transaction between you and your friend?
Answer to relevant QuestionsWhat are the two methods for accounting for bad debts? Describe each method briefly. Discuss which method of handling bad debts is considered more in accordance with GAAP.When an account is written off under the allowance method of accounting for bad debts, why doesn’t the book value of Accounts Receivable decrease? Using the same data as in Exercise, assume that Morgan’s Shop uses the specific charge- off method of accounting for Bad Debts Expense. In Exercise Morgan’s Shop had the following selected transactions this year. ...Malcolm Company uses the aging method of estimating bad debts as of December 31, the end of the fiscal year. Terms of sales are net 30 days. While preparing the aging schedule, the accountant became ill and was unable to ...If the ending merchandise inventory of Year 1 is mistakenly understated by $ 3,000, what is the effect on the following? a. Year 1’s net income? b. Year 1’s balance sheet? c. Year 2’s net income?
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