Samantha Caramanoff: Nebraska Bookshop, The Justification

Samantha Caramanoff: Nebraska bookshop
Name
Course
Instructor
Date
1] Journal entry to record the bad debts expense at year end.
General Journal DebitCreditBad debt expense ((65,000 x 2.5%) - 210)$1,415  Allowance for doubtful accounts$1,415 To record bad debtsBad Debts Expense DebitCreditBalanceEstimate of bad debts$1,415 $1,415 Allowance for bad debts DebitCreditBalanceEstimate of bad debts$1,415 $1,415 
2] Show the balance sheet presentation of the accounts receivable account.
Balance Sheet PresentationAssets Inventoryxxx Cashxxx Accounts receivable$65,000  Less allowance for DA$1,625  Net Accounts Receivable$63,375 3] Determine and specify the amount of bad debts expense that appears on the income statement. Describe how this amount is classified.
The bad debts expense is 2.5% *65,000= $ 1,625.
4] Describe the justification, if any, for Nebraska to use the direct write-off method for accounting for uncollectible accounts.
In most cases the direct write off method is not preferred since a reporting entity does not anticipate the bad debts, and recorded when written off. This implies that the accounts receivable amount in the balance sheets recorded at full amount, and this overstates the accounts receivable, while the bad debts are understated. This approach then violates the matching principle where expenses are recorded to correspond with revenue recognized for the same period. The bad debts are recorded when the receivables are determined to be uncollectible and need to be removed from the records. For these reasons the allowance method for uncollectible accounts is preferred. Nonetheless, the method is preferred when the amounts are insignificant, but not for the financial reporting purposes.
5] Indicate three or four measures Nebraska can implement to minimize his write-offs and explain why investors would be concerned about write-offs.
Nebraska should be more careful about extending credit to debtors by...