Problem 7-4 (Part Level Submission) From inception of operations to December 31,
ID: 2401733 • Letter: P
Question
Problem 7-4 (Part Level Submission)
From inception of operations to December 31, 2017, Sweet 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 previously written off were credited to the allowance account, and no year-end adjustments to the allowance account were made. Sweet’s usual credit terms are net 30 days.
The balance in Allowance for Doubtful Accounts was $145,500 at January 1, 2017. During 2017, credit sales totaled $9,135,400, the provision for doubtful accounts was determined to be $91,354, $91,354 of bad debts were written off, and recoveries of accounts previously written off amounted to $17,970. Sweet 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.
Classification by
Month of Sale
Balance in
Each Category
Estimated %
Uncollectible
Based on the review of collectibility of the account balances in the “prior to 1/1/17” aging category, additional receivables totaling $65,900 were written off as of December 31, 2017. The 75% uncollectible estimate applies to the remaining $95,900 in the category. Effective with the year ended December 31, 2017, Sweet adopted a different method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable.
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 $65,900 write-off.)
SWEET CORPORATION
Analysis of Changes in the
Allowance for Doubtful Accounts
For the Year Ended December 31, 2017
Computation of Allowance for Doubtful Accounts
at December 31, 2017
Aging
Category
Balance
%
Doubtful
Accounts
Classification by
Month of Sale
Balance in
Each Category
Estimated %
Uncollectible
Explanation / Answer
SWEET CORPORATION Analysis of Changes in the Allowance for Doubtful Accounts For the Year Ended December 31, 2017 Balance at January 1, 2017 $ 145,500 Provision for doubtful accounts ($9,135,400 x 2%) 182,708 Recovery in 2017 of bad debts written off previously 17,970 $ 346,178 Less: Write-offs for 2017 ($91,354 +$65,900) $ (157,254) Balance at December 31, 2017 before change in accounting estimate $ 188,924 Increase due to change in accounting estimate during 2017($265,536- $188,924) $ 76,612 Balance at December 31, 2017 adjusted $ 265,536 Computation of Allowance for Doubtful Accounts at December 31, 2017 Aging Category Balance % Doubtful accounts Nov–Dec 2017 $1,184,700 2% $ 23,694 July–Oct 696,600 10% $ 69,660 Jan–June 435,900 23% $ 100,257 Prior to 1/1/17* 95,900 75% $ 71,925 $ 265,536 *$161,800-$65,900