Question

AT&T reported accounts receivable, net, of $96.0 million in 2016 and an allowance for doubtful accounts...

AT&T reported accounts receivable, net, of $96.0 million in 2016 and an allowance for doubtful accounts of $4.0 million. After recording a material impairment expense for the Company’s international operations, Net income in 2016 was $0.4 million. If AT&T's managers had purposely underestimated the allowance for doubtful accounts by half a percentage point, how would the 2016 income statement be affected? What about future financial statements?

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Accounts receivable, gross = $ 96 million + $ 4 million = $ 100 million

Allowance for doubtful accounts percentage = $ 4 million / $ 100 million = 4 %

If allowance was underestimated by half a percentage point , allowance for doubtful accounts = $ 100 million x 3.5 % = $ 3.5 million

Bad debt expense in the income statement of 2016 would be understated by $ 500,000, and net income would be overstated by $ 500,000. Therefore, instead of $ 0.4 million, it would be $ 0.9 million.

Accounts receivable would be overstated by $ 500,000 at $ 96.5 million

Not only will the underestimation result in overstatement of accounts receivable in the balance sheet of 2016, there might also be writeoffs needed in subsequent years, if some of the accounts receivable are uncollectible. This would increase bad debt expense in later years.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
ABC Corporation reported gross accounts receivable of $1.2 billion in 2008 with an allowance for doubtful...
ABC Corporation reported gross accounts receivable of $1.2 billion in 2008 with an allowance for doubtful accounts of $300 million. In 2009 the company's gross accounts receivable declined slightly to $1.1 billion and its allowance for doubtful accounts likewise declines to $150 million. Calculate the ratio of allowance for doubtful accounts divided by gross accounts receivable for both years. Discuss how ABC might be managing its earnings.
On January 1, 2020 easy company reported accounts receivable P2,070,000 and allowance for doubtful accounts P80,000....
On January 1, 2020 easy company reported accounts receivable P2,070,000 and allowance for doubtful accounts P80,000. Credit Sale Writeoffs Recoveries 2017 11,100,000 260,000 22,000 2018 12,250,000 295,000 37,000 2019 14,650,000 300,000 36,000 2020 15,000,000 310,000 40,000 The collections from customers during 2020 totaled 14 million pesos, excluding recoveries. Doubtful accounts are provided for as a percentage of credit sales. The entity calculated the percentage annually by using the experience of the three years prior to the current year. What amount...
December​ 31, 2016​, Warm Weather Travel has an Accounts Receivable balance of $ 89,000. Allowance for...
December​ 31, 2016​, Warm Weather Travel has an Accounts Receivable balance of $ 89,000. Allowance for Doubtful Accounts has a credit balance of $ 870 before the​ year-end adjustment. Service revenue​ (all on​ account) for 2016 was $ 650,000. Warm Weather estimates that​ doubful-account expense for the year is 4​% of service revenue. Requirement 1. Make the​ year-end entry to record​ doubtful-account expense. Show how Accounts Receivable and Allowance for Doubtful Accounts are reported on the balance sheet at December​...
At December 31, 2008, Attwood Company reported Accounts Receivable of $34,000 and Allowance for Doubtful Accounts...
At December 31, 2008, Attwood Company reported Accounts Receivable of $34,000 and Allowance for Doubtful Accounts of $3,500. On January 7, 2009, Brady Enterprises declares bankruptcy and it is determined that the receivable of $1,200 from Brady is not collectible. 1. What is the cash realizable value of Accounts Receivable at December 31, 2008? 2. What entry would Attwood make to write off the Brady account? 3. What is the cash realizable value of Accounts Receivable after the Brady account...
At December 31, 2008, Attwood Company reported Accounts Receivable of $34,000 and Allowance for Doubtful Accounts...
At December 31, 2008, Attwood Company reported Accounts Receivable of $34,000 and Allowance for Doubtful Accounts of $3,500. On January 7, 2009, Brady Enterprises declares bankruptcy and it is determined that the receivable of $1,200 from Brady is not collectible. 1. What is the cash realizable value of Accounts Receivable at December 31, 2008? 2. What entry would Attwood make to write off the Brady account? 3. What is the cash realizable value of Accounts Receivable after the Brady account...
On Dec 31, 2016, Riyadh Company had accounts: Credit sales                                 &nb
On Dec 31, 2016, Riyadh Company had accounts: Credit sales                                                                             $2,500,000 Ending accounts receivable                                                         800,000 Sales discousnts                                                                          120,000 Sales returns and allowances                                                       280,000 Beginning accounts receivable                                                    750,000 Allowance for doubtful accounts (credit)                                     12,000      The aging schedule (aging method) for the company’s accounts receivable is shown in the following table: # of Days Outstanding Amounts Estimated % Uncollectible 0-30 $     100,000 2% 31-60 300,000 4% 61-90 300,000 6% Over 90                     100,000...
L Company has an accounts receivable balance of $50,000 and an allowance for doubtful accounts balance...
L Company has an accounts receivable balance of $50,000 and an allowance for doubtful accounts balance of $4,000 at the end of June before evaluating accounts receivable for collectability.   When L evaluated its accounts receivable, L determined a $3,000 account from a March sale to Andrea Company was uncollectable and wrote off this amount. What was the impact on L's June net income? A$3,000 income that increased June net income B$3,000 bad debt expense that reduced June net income C$0...
DR ($) CR ($) Accounts Receivable $80,000 Allowance for Doubtful Accounts (AFDA) 1,750 Net Sales Revenue...
DR ($) CR ($) Accounts Receivable $80,000 Allowance for Doubtful Accounts (AFDA) 1,750 Net Sales Revenue 600,000 Note: Cash sales for the period were $20,000. Required: Prepare the necessary journal entries to record Bad Debt Expense assuming it is estimated at: i) 1% of net sales ii) 4% of gross Accounts Receivable iii) 5% of net Accounts Receivable when the AFDA has a $1,700 credit balance
following balances: Accounts receivable $ 12,700 Allowance for doubtful accounts $ 300 (Credit Balance) Net Credit...
following balances: Accounts receivable $ 12,700 Allowance for doubtful accounts $ 300 (Credit Balance) Net Credit Sales $ 640,000 a. If the company estimates that 1% of its net credit sales will be uncollectible, what would the journal entry look like? b. If the company estimates that 10% of its accounts receivables will be uncollectible, what would the journal entry look like? c. What is the net present value for both (a and b)?
At the end of 2016, Skysong, Inc. has accounts receivable of $768,300 and an allowance for...
At the end of 2016, Skysong, Inc. has accounts receivable of $768,300 and an allowance for doubtful accounts of $26,300. On January 24, 2017, it is learned that the company’s receivable from Madonna Inc. is not collectible and therefore management authorizes a write-off of $4,480. Use a tabular summary to record the write-off. Enter 2016 amounts as beginning balances. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Assets = Liabilities +...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT