Problem 7-4 Classification by Month of Sale Balance in Each Category Estimated %
ID: 2508500 • Letter: P
Question
Problem 7-4
Classification by
Month of Sale
Balance in
Each Category
Estimated %
Uncollectible
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 $62,100 write-off.)
Computation of Allowance for Doubtful Accounts
at December 31, 2017
Aging
Category
Balance
%
Doubtful
Accounts
Prepare the journal entry for the year-end adjustment to the Allowance for Doubtful Accounts balance as of December 31, 2017. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)
Problem 7-4
From inception of operations to December 31, 2017, Flounder 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. Flounder’s usual credit terms are net 30 days.The balance in Allowance for Doubtful Accounts was $135,700 at January 1, 2017. During 2017, credit sales totaled $9,016,200, the provision for doubtful accounts was determined to be $90,162, $90,162 of bad debts were written off, and recoveries of accounts previously written off amounted to $20,000. Flounder 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 $62,100 were written off as of December 31, 2017. The 81% uncollectible estimate applies to the remaining $95,000 in the category. Effective with the year ended December 31, 2017, Flounder adopted a different method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable.
Explanation / Answer
Working:
Aging Category Balance % Doubtful Acounts Nov. - Dec. 1180600 2% 23612 July - October 659600 10% 65960 January - June 440500 24% 105720 Prior to 1/1/17 157100 81% 76950 Total 272242 Available balance * 205862 Bad debts to be provided as at Dec.31 66380