Penguin Co. uses an aging schedule of accounts receivable in estimating its bad debt expense. The total estimate, which appears on the aging schedule, will be equal to
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the amount of bad debt expense on the company’s income statement. |
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the debit balance required in the allowance account prior to the recognition of bad debt expense. |
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the increase in bad debt expense as a result of the estimate. |
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the credit balance required in the allowance account after the recognition of bad debt expense. |
Part B
Use the following formula for this question:
Debt/equity ratio = Average total liabilities / Average total shareholders’ equity
Justin Company has total assets, liabilities, and shareholders’ equity of $38,000, $17,000, and $21,000, respectively, at the beginning of 2017. At the end of 2017, total assets, liabilities, and shareholders’ equity were reported at $32,000, $13,000, and $19,000, respectively. How much additional debt can Justin Company incur and still have its debt/equity ratio remain less than or equal to 1.00?
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$10,000 |
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$25,000 |
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$12,000 |
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$24,000 |
Part C:
The face amount of accounts receivable for Rio Inc. is $20,000. It was estimated that 5% of the accounts will not be collected, cash discounts of $500 will be exercised, and $200 of sales returns will be experienced. The net realizable value of accounts receivable is
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$19,500 |
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$19,300 |
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$20,000 |
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$18,300 |
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