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Financial Accounting: Tools for Business Decision

Prepare responses to the following assignment from the e-text:

Ch. 8: Questions 3 & 4—page
Ch. 8: Exercise E8-5—page


Financial and Managerial Accounting: The Basis for

Prepare responses to the following assignment from the e-text:

Ch. 9: Exercise E9-9—page 401

. 8: Questions 3 & 4

3. What are the essential features of the allowance method of accounting for bad debts?

4. Lauren Anderson cannot understand why the cash realizable value does not decrease when an uncollectible account is written off under the allowance method. Clarify this point for Lauren. 

. 8: Exercise E8-5

E8-5 Hachey Company ha accounts receivable of $95,100 at March 31, 2007. An analysis of the accounts shows these amounts.

Prepare entries for recognizing accounts receivable.(SO 2)

Balance, March 31 Month of Sale 2007 2006

March $65,000 $75,000

February 12,600 8,000

December and January 10,100 2,400

November and October 7,400 1,100

$95,100 $86,500

Credit terms are 2/10, n/30. At March 31, 2007, there is a $2,200
credit balance in Allowance for Doubtful Accounts prior to adjustment. The company uses the
percentage of receivables basis for estimating uncollectible accounts. The company’s
estimates of bad debts are as shown on page 402.

Reporting and Analyzing Receivables

Estimated Percentage Age of Accounts Uncollectible Current 2%1–30 days past due 7 31–90 days past due 30 Over 90 days 50


(a) Determine the total estimated uncollectibles.

(b) Prepare the adjusting entry at March 31, 2007, to record bad
debts expense.

(c) Discuss the implications of the changes in the aging schedule
from 2006 to 2007.

: Exercise E9-9

E9-9 Optix International is considering a significant expansion to its product line. The sales force is excited about the opportunities that the new products will bring. The new products are a significant step up in quality above the company’s current offerings, but offer a complementary fit to its existing product line.
Frank Renolds, senior production department manager, is very excited about the high-tech
new equipment that will have to be acquired to produce the new products. Carol Fischer,
the company’s CFO, has provided the following projections based on results with and
without the new products.Without New Products With New Products

Sales $10,000,000 $18,000,000

Net income $800,000 $1,800,000

Average total assets $5,000,000 $15,000,000


a) Compute the company’s return on assets ratio, profit margin ratio, and asset turnover ratio, both with and without the new product line.

(b) Discuss the implications that your findings in part (a) have for the company’s decision.


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School: Duke University

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