Response to the following problem:
Carpenter Associates
The following information is for Carpenter Associates at the end of 2008. Sales $800,000 Sales returns & allowances 8,000 Accounts receivable, 12/31/08 175,000 Allowance for doubtful accounts, 12/31/08 (before adjustment for bad debts) 1,000 Estimated uncollectible accounts per aging schedule at 12/31/08 7,500
1. Refer to Carpenter Associates. If bad debts are estimated at 1% of net sales, how much will Carpenter report as bad debts expense for 2008?
2. Refer to Carpenter Associates. If the aging approach is used to estimate bad debts, how much bad debts expense will Carpenter report for 2008?
3. Refer to Carpenter Associates. If the aging approach is used to estimate bad debts, how much is the net realizable value of the accounts receivable at December 31, 2008?
4. Refer to Carpenter Associates. Assume that the net realizable value is $170,000 after the adjustment for bad debts in 2008. How much is the net realizable value of accounts receivable after a customer's account of $2,500 is written off? Explain why.
5. Refer to Carpenter Associates. Determine the effect on Carpenter's accounting equation of the yearend adjustment of bad debts using the aging approach.