What are the essential features

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.

 Chapter 8 E8-5

BE8-5 Jaya Co. uses the percentage of receivables basis to record bad debts expense

and concludes that 2% of accounts receivable will become uncollectible. Accounts receivable are $500,000 at the end of the year, and the allowance for doubtful accounts has a credit balance of $1,500.

(a) Prepare the adjusting journal entry to record bad debts expense for the year.

(b) If the allowance for doubtful accounts had a debit balance of $600 instead of a credit

balance of $1,500, prepare the adjusting journal entry for bad debts expense.

 Prepare entry using percentage of receivables method. S03

 Exercise 9.0

The write d own of Impaired Assets

 For several years a number of Food Lions stores were unprofitable. The company closed and continue to close some of these locations. It is apparent that the company will not be able to recover the cost of the assets associated with the closed stores. Thus the current values of these impaired assets must be written down (Pg 381).

 A recent Food Lion income statement reports a 9.5 million charge against income pertaining to the write-down of impaired assets.

 Explain why Food Lion must write down the current carrying value of its unprofitable stores?

1. Explain why the recent 9.5 million charge to write down these impaired assets is considered a non-cash expense.