Madison Corporation uses the allowance method to value its accounts receivable and is making the annual adjustments
Question:
Madison Corporation uses the allowance method to value its accounts receivable and is making the annual adjustments at fiscal year-end, November 30. The proportion of uncollectible accounts is estimated based on past experience, which indicates 1.5% of net credit sales will be uncollectible. Total sales for the year were $2,000,000, of which $200,000 were cash transactions. Madison has determined that the Norris Corporation accounts receivable balance of $10,000 is uncollectible and will write off this account before year-end adjustments are made. Listed below are Madison’s account balances at November 30 prior to any adjustments and the $10,000 write-off.
Sales | $2,000,000 |
Accounts receivable | 750,000 |
Sales discounts | 125,000 |
Allowance for doubtful accounts | 16,500 |
Sales returns and allowances | 175,000 |
Bad debt expense | 0 |
|
|
The entry to write off Norris Corporation’s accounts receivable balance of $10,000 will
a. Increase total assets and decrease net income.
b. Decrease total assets and net income.
c. Have no effect on total assets and decrease net income.
d. Have no effect on total assets and net income.
Intermediate Accounting
ISBN: 978-0077400163
6th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson