Problem 7-4 SHOW LIST OF ACCOUNTS Account Titles and Explanation Debit Credit (T
ID: 2540361 • Letter: P
Question
Problem 7-4
SHOW LIST OF ACCOUNTS
Account Titles and Explanation
Debit
Credit
(To record adjustment resulting from a change in accounting estimate)
Problem 7-4
From its first day of operations to December 31, 2017, Whispering Winds Corp. provided for uncollectible accounts receivable under the allowance method: entries for bad debt expense were made monthly based on 2.25% of credit sales, bad debts that were 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 were made to the allowance account. Sheffield’s usual credit terms were net 30 days, and remain unchanged.The balance in Allowance for Doubtful Accounts was $183,000 at January 1, 2017. During 2017, credit sales totalled $9.35 million, interim entries for bad debt expense were based on 2.25% of credit sales, $95,000 of bad debts were written off, and recoveries of accounts previously written off amounted to $14,300. Sheffield upgraded its computer facility in November 2017, and an aging of accounts receivable was prepared for the first time as at December 31, 2017.
A summary of the aging analysis follows:
Classification by Month of Sale Balance in Each Category Estimated % Uncollectible November-December 2017 $1,061,000 9% July-October 2017 657,000 12.1% January-June 2017 426,000 20% Before January 1, 2017 157,000 64% $2,301,000
Based on a review of how collectible the accounts really are in the “Before January 1, 2017” aging category, additional receivables totalling $65,200 were written off as at December 31, 2017. The 64% uncollectible estimate therefore only applies to the remaining $91,800 in the category. Finally, beginning with the year ended December 31, 2017, Sheffield adopted a new accounting method for estimating the allowance for doubtful accounts: it now uses the amount indicated by the year-end aging analysis of accounts receivable.
Explanation / Answer
Whispering Winds Corp. Analysis of changes in Allowance for Doubtful accounts For the year ended 31st Dec 2017 Balance at 01 Jan 2017 $183,000 Provision for Doubtful Debt Account ( $93,50,000*2.25%) (a) $210,375 Recovery in 2017 for bad debt written off previously (b) $14,300 (c=a+b) $407,675 Deduct Writte-off for 2017 ( $95000+$65200) (d) $160,200 Balance at Decemeber 31, 2017 before change in Accounting estimate ( c-d) $247,475 Increase due to change in accounting estimate during 2017 ( $318939-$247475) $71,464 Balance at December 31,2014, adjusted ( Schedule-A) $318,939 ScheduleA:- Computation for allowance for Doubtful Account at Dec 2017 Ageing Category Balance Percent Doubtful Account November-December2017 $1,061,000 9% $95,490 July-October 2017 $657,000 12.10% $79,497 January- June2017 $426,000 20% $85,200 Prior to 1st January 2017 $91,800 64% $58,752 Total $2,235,800 $318,939 Journal Entry Date Account Title & Explanation Debit Credit 31/12/2017 Bad Debt Expense $71,464.00 Allowance for Doubtful Accounts $71,464.00 ( Being increase the allowance for doubtful Account)