Finc 406 - Module 6 Concept Check Study Guide Rated A+

Because Kathy Miller declared bankruptcy immediately after Winfield's year-end, there is a good possibility that Winfield had some doubt about the customer's ability to pay. For example, Winfield may have had difficulty collecting the $11,500 and in that case, the company would have already established an allowance for the Miller account. This would have increased bad debt expense in 2013 and increased the allowance reported on the 2013 balance sheet. Regardless, the bankruptcy would cause Winfield to write the account off. This would cause no effect on the 2014 balance sheet or income statement. {Ans: Winfield Sporting Goods reports the following on its 2013 balance sheet: Accounts receivable Less: allowance for uncollectible accounts Accounts receivable, net of allowance $820,000 (54.300) $765,700 Company records reveal that Kathy Miller owes Winfield Sporting Goods $11,500. Just after 2013 year-end, Kathy Miller declares bankruptcy and it becomes clear to Winfield Sporting Goods that the company will not be able to recover any money from Miller. Indicate how this information affects the balance sheets and income statements in 2013 and 2014.}By underestimating the current year's allowance, Dick's Sporting Goods reported pretax income that was higher by $750 thousand. The actual pretax income should have