Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 51

Bad debts analysis—Allowance account On January 1, 2010, the balance in Kubera Co.’s Allowance for Bad Debts account was $9,720. During the year, a total of $23,900 of delinquent accounts receivable was written off as bad debts. The balance in the Allowance for Bad Debts account at December 31, 2010, was $10,480.

Required:

a. What was the total amount of bad debts expense recognized during the year? (Hint: Make a T-account for the Allowance for Bad Debts account.)

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b. As a result of a comprehensive analysis, it is determined that the December 31, 2010, balance of Allowance for Bad Debts should be $23,200. Show in the hori­zontal model or in journal entry format the adjustment required.

Step 1 of 4

Depreciation:

Depreciation is the reduction in the value of the asset for a particular period. It is an expense to the company. It is reported in the income statement of the company by recording an adjusting entry. One of the methods of calculation of depreciation is straight-line depreciation method.

Straight line method:

Straight line method is a method of calculating depreciation by dividing the difference between the cost of the asset and its salvage value with its expected life. This method results in equal depreciation expense for a year over the expected life of the asset.

Accelerated depreciation method:

An accelerated depreciation method is a method of depreciation, in which the amount of depreciation expense will be higher in the earlier years of usage of the asset when compared with straight line method. Declining balance method is one of the accelerated depreciation methods.