The following information was extracted from the 2020 financial statements of Sheridan Company:
Income from continuing operations before income tax $703500
Selling and administrative expenses 478000
Income from continuing operations 502000
Gross profit 1343000
Required:
a. Assuming that there are no other revenues and gains, amount reported for other expenses and losses is .
O $24000.
O $201500.
O $225500.
O $161500.

$161500.

Explanation:

a normal income statement should be:

total revenue                                                  x

- COGS                                                           (y)          

gross profit =                                              $1,343,000

- selling and administrative expenses =   ($478,000)

EBIT =                                                           $865,000

- interests paid, other expenses & losses =    

income before taxes                                   $703,500

- taxes                                                              (t)          

                                                                    net income                                              

other expenses and losses = $865,000 - $703,500 = $161,500

Dr. Bad debt expense. $11,200

To Allowance for doubtful accounts $11,200

Explanation:

Given that:

Accounts receivable balance = $280,000

Total credit sales = $2,810,000

5% of accounts receivables will be bad debt = $280,00 × 5% = $14,000

Credit balance allowance for doubtful account = $2,800 and it must increase to $14,000 I.e $14,000 - $2,800 = $11,200

Adjusting journal entry

Dr Bad debt expense $11,200

Cr Allowance for doubtful accounts $11,200