ACC102-Accounting Principles


1.You run an office supplies chain. You must determine the most appropriate bad debt estimation method to use for financial statement reporting. Your choices are the income statement, balance sheet, and balance sheet aging of receivables methods.

a.Research a real competitor in your industry and determine which method the competitor selected. Give a detailed description of the method used and any supporting calculations.

b.Create a hypothetical credit sale, an accounts receivable figure for your business, and compute the bad debt estimation using the competitor’s method.

c.Create the journal entry to record bad debt.

d.Compute bad debt using the other two methods and show the journal entry for each.

e.What are the benefits and challenges for all of these methods?

f.Which method would you choose for your business? Explain why.

2.You are considering a $100,000 investment in one of two publicly traded companies in the same industry. Review the last three annual financial statements (same fiscal year) for two publicly traded companies in the same industry. Based on the information obtained, complete the following.

a.Compute the accounts receivable turnover ratio (round all answers to two decimal places).

b.Compute the number of days’ sales in receivables ratio for both companies for the two most current years (round all answers to two decimal places).

c.Describe and interpret the outcomes, stating which company you would invest in and why.

d.What information is missing that could help you make a more informed decision?

3.You own a construction company and have recently received a contract with the local school district to refurbish one of its elementary schools. You are given an up-front payment from the school district in the amount of $5 million. The contract terms extend from years 2018 to 2020.

a.When would you recognize revenue for this payment?

b.What method of accounting would you use for this construction project and why?

c.What would be the benefits and challenges with your method selection?

d.Give an example of your distribution selection and associated costs of the project (you may estimate based on other industry competitors).

e.What might be some benefits and challenges associated with the other method of construction revenue recognition?



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