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Nebraska bookshop specializes in used, rare, and
out-of-print books. The store has a large base of repeat customers who purchase
books on 30-day accounts. At 15 days overdue, each customer gets a phone call
from Nebraska requesting payment. Nebraska has experienced a high success rate
with this collection effort. Nebraska’s CPA is preparing year-end financial
statements, and the company has asked him for his estimate of uncollectible
accounts. Nebraska has a balance of $65,000 in the accounts receivable account
at the end of the year. The CPA has analyzed the company’s uncollectible
accounts using an aging of the accounts receivable. He estimates that only 2.5%
of his accounts receivable balance will not be collected. The allowance for
doubtful accounts has a credit balance of $210 in the trial balance.
Complete the following:
Prepare the journal
entry to record the bad debts expense at year end.
Show the balance
sheet presentation of the accounts receivable account.
Determine and specify
the amount of bad debts expense that appears on the income statement. Describe
how this amount is classified.
justification, if any, for Nebraska to use the direct write-off method for
accounting for uncollectible accounts.
Indicate three or
four measures Nebraska can implement to minimize his write-offs and explain why
investors would be concerned about write-offs.
Your response should include 2-3 pages of written text in addition to any calculations and solutions
you offer to support your thinking. Document formatting and any citations
should conform to Writing and APA