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P7-4 (Bad-Debt Reporting) From inception of operations to December
31, 2014, Fortner Corporation provided for uncollectible accounts
receivable under the allowance method. Provisions were made 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. 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.)