Artemis Is a University Professor Carrying on an Internet-Based Auction

question 24

Essay

Artemis is a university professor carrying on an Internet-based auction business that is losing money.He is concerned about liability and wants to transfer the business to a corporation he will incorporate.He will be the sole shareholder,director,and officer.He thinks that his business will continue to lose money for the next couple of years before it turns profitable.He is living on his professor's income and plans to continue to deduct the business losses against that income.Can he do this?

Understand the effects of failing to record estimated bad debts expense.

Know the procedures for writing off and recovering uncollectible accounts under the allowance method.

Understand the impact of write-offs on the carrying amount of accounts receivable.

Comprehend the effect of the allowance method for uncollectible accounts on financial statements.

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Definitions:

Operating Income

This is the profit realized from a business's ongoing operations, calculated as the difference between operating revenues and operating expenses.

Land Account

A type of asset account on the balance sheet representing the cost of land owned by a company.

Accounts Payable

Liabilities of a business that are due to be paid to creditors within a short period of time, typically one year.

Supplies Expense

This refers to the cost recorded for supplies used during an accounting period, not necessarily when they were purchased.