Friday, June 3, 2016

Accounting - Timberland Annual Report case solution


Refer to the excerpts from the Timberland Annual Report shown and try to answer the following questions:

1.      As of the end of 1998, how much is owed to Timberland by its customers for goods and services which Timberland has already delivered and for which it has recognized revenue?

A/R, net                                  79,024 (thousand), net of allowance below
Allowance                                4,769 (thousand)
Gross Owed                           83,793

2.      As at the end of 1998, what is the balance in the allowance for doubtful accounts?

Allowance                                4,769 (thousand)

3.      Present the journal entry that Timberland made to record its provision for bad debts during 1998.

Dr. Bad Debt expense                       2,383,000
            Cr. Allowance for Doubtful Accounts        2,383,000

4.      Present the journal entry that Timberland made to write-off its uncollectible accounts in 1998. (Assume recoveries are 0)

Dr. A.D.A.                                         1,356,000
            Cr. A/R                                                          1,356,000







5.      Construct a T-account for the allowance account for 1997, be sure to show beginning and ending balances as well as all activity.


ADA

                                                                                    3,540 B.B
Write-off                                3,403
                                                                                    3,605 Bad Debt Expense Entry

                                                                                    3,742 E.B.

6. Assuming all sales are credit sales and Timberland uses the percentage of sales method to calculate their bad debt expense, what percentage are they using in each of the three years presented (assume each year is an independent assessment)? Describe the pattern and assess the reasonableness of those percentages, relatively.

1998    .003     (2,383/862,168)
1997    .0045
1996    .003

96 and 98 are comparable, there is a 50% increase in 1997 – this seems odd – one would expect a long term average to be applied consistently.










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