P7-4 (LO3) (Bad-Debt Reporting) From inception of operations to December 31, 201
ID: 2509375 • Letter: P
Question
P7-4 (LO3) (Bad-Debt Reporting) From inception of operations to December 31, 2017, Fortner Corporation provided for uncollectible accounts receivable under the allowance method. The provisions are recorded, based on analyses of customers with different risk characteristics. Bad debts written off were charged to the allowance account; recoveries of bad debts previ ously written off were credited to the allowance account, and no year-end adjustments to the allowance account were made Fortner's usual credit terms are net 30 day The balance in Allowance for Doubtful Accounts was $130,000 at January 1,2017. During 2017, credit sales totaled $9,000,000, the provision for doubtful accounts was determined to be $180,000, $90,000 of bad debts were written off, and recoveries of accounts previously written off amounted to $15,000. Fortner installed a computer system in November 2017, and an aging of accounts receivable was prepared for the first time as of December 31, 2017. A summary of the aging is as follows. Balance in Each Cate Estimated % Uncollectible 2% 10% 25% 80% Classification by Month of Sale November-December 2017 July-October January-June Prior to 1/1/17 $1,080,000 650,000 420,000 150,000 $2,300,000 Based on the review of collectibility of the account balances in the "prior to 1/1/17" aging category, additional receivables totaling $60,000 were written off as of December 31, 2017, The 80% uncollectible estimate applies to the remaining $90,000 in the category Effective with the year ended December 31, 2017, Fortner adopted a different method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable. Instructions (a) Prepare a schedule analyzing the changes in Allowance for Doubtful Accounts for the year ended December 31, 2017 Show supporting computations in good form. (Hint: In computing the 12/31/17 allowance, subtract the $60,000 write-off.,) (b) Prepare the journal entry for the year-end adjustment to Allowance for Doubtful Accounts balance as of December 31, 2017Explanation / Answer
(a)
(b)
Schedule of Changes in Allowance for Doubtful Accounts Balance, January 1, 2017 130000 Add: Provision for doubtful debts ($180000 + $88600) 268600 Recoveries of accounts previously written-off 15000 283600 413600 Less: Bad debts written-off ($90000 + $60000) 150000 Balance, December 31, 2017 263600Related Questions
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