1. Discuss the accounts that should be included in the "Cash and Cash Equivalents" section of the balance sheet. How should excluded accounts be recorded and presented in the financial statements? 2. Discuss the appropriate methods for estimating and recording the allowance for uncollectible accounts. How should this amount be recorded and presented in the financial statements? 3. Discuss the appropriate accounting treatment for the anticipated sales returns and allowances. How should this amount be recorded and presented in the financial statements?
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Uncollectible Accounts C&N Ltd is a manufacturer that makes all sales on a 30-day credit term. Annual sales are approximately $25 million. At the end of 2016, accounts receivable were presented in the company's Balance Sheet as follows: Accounts Receivable: $2,350,000 Less: Allowance for Doubtful Accounts: $70,000 During 2017, $740,000 in accounts receivable were written off as uncollectible. Of these amounts written off, receivables totaling $24,000 were unexpectedly collected. At the end of 2017, an aging of accounts receivable indicated a need for an $80,000 allowance to cover possible failure to collect the accounts currently outstanding. C&N Ltd makes adjusting entries in its accounting records only at year-end. Required: a. Explain the difference between making an allowance for bad debts and writing off a bad debt. Explain how each case is treated and shown in accounting. b. Prepare one journal entry to summarize all accounts written off against the allowance for doubtful accounts in 2017. c. Prepare entries to record the $24,000 in accounts receivable that were unexpectedly collected. d. Make an adjusting entry on December 31, 2017, to increase the allowance for doubtful accounts to $80,000.
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