Question

The accounting department of your company has just delivered a draft of the current year's financial statements to you. The summary is as follows: Beginning of the Year End of the Year Total Assets $550,000 $607,000 Total Liabilities 210,000 208,000 Total Equity 340,000 399,000 Net Income for the Year 99,300 Common Shares Outstanding 20,000 20,000 You discovered that they have not adjusted for estimated bad debt expenses of $7,900. For each of the following ratios, calculate: 1. The ratio that would have resulted had the error not been discovered (i.e. the incorrect ratio). 2. The correct ratio.

Answer 1

The adjustment had a negative impact in the Net Income with an entry through Bad Debt Expenses.

Bad debt expense $ 7,900

Allowance for Uncollectible Accounts $ 7,900

Step-by-step explanation:

As you have less Net Income then your retained earnings decrease and else the Account Receivable in the Assets part of the balance sheet.

Assets End Adj

TOTAL CURRENT ASSETS

TOTAL ASSETS 599,100

TOTAL LIABILITIES 208,000

TOTAL EQUITY 391,100

TOTAL EQUITY + LIABILITIES 599,100

-

Net Income 91,400

Wrong version

Assets Worng

TOTAL ASSETS 607,000

TOTAL LIABILITIES 208,000

TOTAL EQUITY 399,000

TOTAL EQUITY + LIABILITIES 607,000

-