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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.)
Prepare the journal entry for the year-end adjustment to
Allowance for Doubtful Accounts balance as of December 31,
2014.
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