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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Allowance for Doubtful Accounts From inception of operations to December 31, 2018, Harris Corporation provided for uncollectible accounts receivable under the allowance method Provisions were nude monthly at 2% of credit sales; 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. Harris’s usual credit terms are net 30 days.

The balance in the Allowance for Doubtful Accounts was $130,000 at January 1, 2019. During 2019, credit sales totaled $9,000,000, interim provisions for doubtful accounts were made at 2% of credit sales, $90,000 of bad debts were written off, and recoveries of accounts previously written off amounted to $15,000. Harris upgraded its computer facility in November 2019, and an aging of accounts receivable was prepared for the first time as of December 31, 2019. A summary of the aging is as follows:

Chapter 6, Problem 5P, Allowance for Doubtful Accounts From inception of operations to December 31, 2018, Harris

Based on the review of collectibility of the account balances in the “prior to 1/1/2019” aging category, additional receivables totaling $60,000 were written off as of December 31, 2019 Effective with the year ended December 31, 2019, Harris adopted a new accounting method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable.

Required:

  1. 1. Prepare a schedule analyzing the changes in the allowance for doubtful accounts for the year ended December 31, 2019. Show supporting computations in good form.
  2. 2. Prepare the journal entry for the year-end adjustment to the Allowance for Doubtful Accounts balance as of December 31, 2019.

1.

To determine

Prepare a schedule measuring the changes in the allowance for doubtful accounts for the year ended December 31, 2019.

Explanation

Allowance for Doubtful Accounts: This is a contra asset account to the Accounts Receivables account that reduces the asset balance, and report the net realizable accounts receivable value on the balance sheet. Allowance for Doubtful Accounts indicates the amount of receivables that are expected to remain uncollectible.

Schedule measuring the changes in the allowance for doubtful accounts is prepared as follows:

Corporation H
Analysis of Changes in the Allowance for Doubtful Accounts
For the Year Ended December 31, 2019
ParticularsAmount ($)
Balance at January 1, 2019130,000
Provision for doubtful accounts (1)180,000
Recovery in 2019 of bad debts written off previously15,000
 325,000
Deduct write-offs for 2019 (2)(150,000)
Balance at December 31, 2019, before change in accounting estimate175,000
Increase due to change in accounting estimate during 2019 (3)60,300
Balance at December 31, 2019, adjusted (4)235,300

Table (1)

Working notes:

(1) Calculate the provision for doubtful accounts:

Provisionfordoubfuldebts}=(Creditsalesmade×Percentageofprovisionfordoubtfuldebts)=$9,000,000×2%=$180,000

(2) Calculate the write-offs for the year 2019:

write-offs for the year 2019}=(Baddebtswrittenoffduring2019+

2.

To determine

Record the adjusting journal entry to record the allowance for the doubtful accounts.

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