Question

Marigold Company has recorded bad debt expense in the past at a rate of 1.5% of...

Marigold Company has recorded bad debt expense in the past at a rate of 1.5% of accounts receivable, based on an aging analysis. In 2020, Marigold decides to increase its estimate to 2%. If the new rate had been used in prior years, cumulative bad debt expense would have been $437,500 instead of $328,125. In 2020, bad debt expense will be $123,200 instead of $92,400. If Marigold’s tax rate is 30%, what amount should it report as the cumulative effect of changing the estimated bad debt rate? (Do not leave any answer field blank. Enter 0 for amounts.)

The cumulative effect of changing the estimated bad debt rate $enter the cumulative effect of changing the estimated bad debt rate in dollars

Homework Answers

Answer #1

As per Internation Accounting standards IAS 8 on changes in accounting policies and accounting estimates, for change in accounting estimates such as rate of bad debt expense, the change must be recorded prospectively and not retrospectively because certain circumstances would have occured now which demand change in rate of bad debt expense. Such circumstances would not have existed earlier when a different bad debt expense rate was applied.

So, in this case, the bad debt expense to be recorded in 2020 will be $123,200 and the cumulative effect of changing the estimated bad debt rate to 2% will be $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.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Sweet Company has recorded bad debt expense in the past at a rate of 1.5% of...
Sweet Company has recorded bad debt expense in the past at a rate of 1.5% of accounts receivable, based on an aging analysis. In 2017, Sweet decides to increase its estimate to 2%. If the new rate had been used in prior years, cumulative bad debt expense would have been $399,500 instead of $291,800. In 2017, bad debt expense will be $136,600 instead of $92,470. If Sweet’s tax rate is 30%, what amount should it report as the cumulative effect...
Monty Company has recorded bad debt expense in the past at a rate of 1.5% of...
Monty Company has recorded bad debt expense in the past at a rate of 1.5% of accounts receivable, based on an aging analysis. In 2017, Monty decides to increase its estimate to 2%. If the new rate had been used in prior years, cumulative bad debt expense would have been $385,200 instead of $289,000. In 2017, bad debt expense will be $121,200 instead of $95,720. If Monty’s tax rate is 29%, what amount should it report as the cumulative effect...
Omega Company has provided the following information prior to any year-end bad debt adjustment: ·       Cash sales...
Omega Company has provided the following information prior to any year-end bad debt adjustment: ·       Cash sales are $150,000 ·       Credit sales are $450,000 ·       Accounts receivable (gross) are $110,000 ·       Allowance for doubtful accounts balance is $1,200 Omega prepares an aging of accounts receivable and the result shows that 5% of gross accounts receivable is estimated to be uncollectible. What is the balance in the allowance for doubtful accounts after the bad debt expense is recorded?            A) $5,500            B) $6,700            C) $4,240            D)...
E8-7 Computing Bad Debt Expense Using Aging of Accounts Receivable Method [LO 8-2] Brown Cow Dairy...
E8-7 Computing Bad Debt Expense Using Aging of Accounts Receivable Method [LO 8-2] Brown Cow Dairy uses the aging approach to estimate Bad Debt Expense. The balance of each account receivable is aged on the basis of three time periods as follows: (1) 1–30 days old, $12,000; (2) 31–90 days old, $5,000; and (3) more than 90 days old, $3,000. For each age group, the average loss rate on the amount of the receivable due to uncollectibility is estimated to...
Estimating and Recording Bad Debt Estimates and Write-offs; Reporting of Accounts Receivable At December 31, 2020,...
Estimating and Recording Bad Debt Estimates and Write-offs; Reporting of Accounts Receivable At December 31, 2020, its annual year-end, the accounts of Sun Systems Inc. show the following. 1. Sales revenue for 2020, $180,000, of which one-sixth was on account. 2. Allowance for doubtful accounts, balance December 31, 2019, $900 credit. 3. Accounts receivable, balance December 31, 2020 (prior to any write-offs of uncollectible accounts during 2020), $18,050. 4. Uncollectible accounts to be written off, December 31, 2020, $1,050. 5....
D & A Company uses the aging of accounts receivable approach to estimate bad debt expense....
D & A Company uses the aging of accounts receivable approach to estimate bad debt expense. On December 31, 2019, an analysis of accounts receivable revealed the following: Schedule of accounts receivable by age Accounts receivable, Dec 31 Age of Accounts receivable Estimated percentage of uncollectible $130,000 Not yet due 0.75% 45,000 1-30 days past due 4% 9,000 31-60 days past due 10% 4,000 61-90 days past due 60% 2,000 Over 90 days past due 90% Required: a) Calculate the...
Entries for Bad Debt Expense under the Direct Write-Off and Allowance Method Casebolt Company wrote off...
Entries for Bad Debt Expense under the Direct Write-Off and Allowance Method Casebolt Company wrote off the following accounts receivable as uncollectible for the first year of its operations ending December 31: Customer Amount Shawn Brooke $11,700 Eve Denton 10,900 Art Malloy 15,100 Cassie Yost 2,800 Total 40,500 a. Journalize the write-offs for under the direct write-off method. If an amount box does not require an entry, leave it blank. b. Journalize the write-offs for under the allowance method. Also,...
Casilda Company uses the aging approach to estimate bad debt expense. The ending balance of each...
Casilda Company uses the aging approach to estimate bad debt expense. The ending balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, $50,000; (2) up to 180 days past due, $14,000; and (3) more than 180 days past due, $4,000. Experience has shown that for each age group, the average loss rate on the amount of the receivables at year-end due to uncollectibility is (1) 3 percent, (2) 12...
Flyer Company has provided the following information prior to any year-end bad debt adjustment: Cash sales,...
Flyer Company has provided the following information prior to any year-end bad debt adjustment: Cash sales, $156,000 Credit sales, $456,000 Selling and administrative expenses, $116,000 Sales returns and allowances, $36,000 Gross profit, $496,000 Accounts receivable, $165,000 Sales discounts, $20,000 Allowance for doubtful accounts credit balance, $1,800 Flyer estimates bad debt expense assuming that 1% of credit sales have historically been uncollectible. What is the balance in the allowance for doubtful accounts after bad debt expense is recorded? Multiple Choice $4,320....
Blue Skies Equipment Company uses the aging approach to estimate bad debt expense at the end...
Blue Skies Equipment Company uses the aging approach to estimate bad debt expense at the end of each accounting year. Credit sales occur frequently on terms n/60. The balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, (2) up to one year past due, and (3) more than one year past due. Experience has shown that for each age group, the average loss rate on the amount of the...