Question

Jarden Company has credit sales of \(3,600,000 for year 2017. On December 31, 2017, the company’s Allowance for Doubtful Accounts has an unadjusted credit balance of \)14,500. Jarden prepares a schedule of its December 31, 2017, accounts receivable by age. On the basis of past experience, it estimates the percent of receivables in each age category that will become uncollectible. This information is summarized here.

Required:

3. On June 30, 2018, Jarden Company concludes that a customer’s $4,750 receivable (created in 2017) is uncollectible and that the account should be written off. What effect will this action have on Jarden’s 2018 net income? Explain.

Short answer

Answer

There will be no effect on the net income of Jarden Company as of 2018.

Step-by-step solution

Step-by-Step SolutionStep 1: Meaning of Net Income

Net income is the total income of an organization earned through the sale of merchandise.

Effect of action on the Jarden’s 2018 net income

The balance under the written-off uncollectible receivables will not have a direct effect on the net income of Jarden. As per the journal entry of write-off debt, the amount of allowance for doubtful accounts will be debited, and on the other hand, the amount of accounts receivables will credit for $4,750. It will lead to a no effect on the income statement of Jarden that states a no impact on the 2018 net income.