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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. Fortner’s usual credit terms are net 30
days. The balance in Allowance for Doubtful Accounts was $130,000 at
January 1, 2014. During 2014, 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. Fortner installed a computer
system in November 2014, and an aging of accounts receivable was
prepared for the first time as of December 31, 2014. A summary of the
aging is as follows. Based on the review of collectability of the account
balances in the “prior to 1/1/14” aging category, additional receivables
totaling $60,000 were written off as of December 31, 2014. The 80%
uncollectible estimate applies to the remaining $90,000 in the category.
Effective with the year ended December 31, 2014, Fortner 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, 2014. Show supporting
computations in good form. (Hint: In computing the 12/31/14 allowance,
subtract the $60,000 write-off.)
Prepare the journal entry for the year-end adjustment to Allowance for
Doubtful Accounts balance as of December 31, 2014.
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ACC 537 Week 2 Textbook Problems P10-2 Lobo Corporation
(Team Paper and Solution)