Classification by Month of Sale Balance in Each Category Estimated % Uncollectib

Question

Classification by
Month of Sale

Balance in
Each Category

Estimated %
Uncollectible

(a)

FLOUNDER 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

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 $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. 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

November–December 2017 $1,184,700 2% July–October 696,600 10% January–June 435,900 23% Prior to 1/1/17 161,800 75% $2,479,000
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, 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

(a)

Computation of Allowance for Doubtful Accounts at December 31, 2017

FLOUNDER CORPORATION Analysis of Changes in the Allowance for Doubtful Accounts For the Year Ended December 31, 2017 Balance at January 1, 2017 145500 Recovery in 2017 of bad debts written off previously 17970 Write-offs for 2017 -91354 72116 Add/Less: Provision for doubtful accounts 91354 Balance at December 31, 2017 before change in accounting estimate 163470 Increase due to change in accounting estimate during 2017 102066 Balance at December 31, 2017 adjusted 265536

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