From inception of operations to December 31, 2014, Fortner Corporation provided

Question

From inception of operations to December 31, 2014, Fortner Corporation provided for uncollectible accounts receivable under the allowance method: Provisions were made monthly at 1% 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 $149,700 at January 1, 2014. During 2014, credit sales totaled $9,145,900, interim provisions for doubtful accounts were made at 1% of credit sales, $91,459 of bad debts were written off, and recoveries of accounts previously written off amounted to $15,600. 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 "prrto 1/1/14" aging category, additional receivables totaling $61,400 were written off as of December 31, 2014. The 82% uncollectible estimate applies to the remaining $93,300 in the category. Effective with the year ended December 31, 2014, Fortner adopted a different method for estimating the allowance for doubtful accounits at the amount indicated by the year-end aging analysis of accounts receivable. Calculate balance in allowance for doubtful acc units at December 31, 2014 Balance at December 31, 2014 adjusted

Explanation / Answer

Problem 7-4 From inception of operations to December 31, 2014, Fortner Corporation provided for uncollectible accounts receivable under the allowance method: Provisions were made monthly at 1% 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 $149,700 at January 1, 2014. During 2014, credit sales totaled $9,145,900, interim provisions for doubtful accounts were made at 1% of credit sales, $91,459 of bad debts were written off, and recoveries of accounts previously written off amounted to $15,600. Fortner installed a computer system in November 2014, and an aging of accounts receivable was prepared for the ²rst time as of December 31, 2014. A summary of the aging is as follows: Classifcation by Month oF Sale Balance in Each Category Estimated % Uncollectible November–December 2014 $1,172,500 2% July–October 658,400 12% January–June 444,000 25% Prior to 1/1/14 154,700 82% Total $2,429,600 Based on the review of collectibility of the account balances in the “prior to 1/1/14” aging category, additional receivables totaling $61,400 were written off as of December 31, 2014. The 82% uncollectible estimate applies to the remaining $93,300 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. (a) Calculate balance in allowance for doubtful accounts at December 31, 2014 (Hint: In computing the 12/31/14 allowance, substract the $61,400 written off). Balance at December 31, 2014 adjusted $ Classifcation by Month oF Sale Balance in Each Category Estimated % Uncollectible November–December 2014 $1,172,500 2% July–October 658,400 12% January–June 444,000 25% Prior to 1/1/14 154,700 82% Total $2,429,600 Solution: The 82% uncollectible estimate applies to the remaining $93,300 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. $93,300 93300*82% $76,506 Classifcation by Month oF Sale Balance in Each Category Estimated % Uncollectible Calculation of balance in each category@ estimated % uncollectible = ex: $1,72,500*2% November–December 2014 $1,172,500 2% $23,450 July–October 658,400 12% $79,008 January–June 444,000 25% $111,000 Prior to 1/1/14 154,700 82% $126,854 Total $2,429,600 $340,312 Ledger Accounts Allowance for Doubtful Accounts Date Debit Credit Balance 1/1/2014 $149,700 1 Bad Debit Expense 1% on credit sales = $9,145,900 * 1/100 $91,459 $241,159 2 Accounts receivable $93,300 $147,859 3 Recoveries of accounts previously written off amounted (cash account) $15,600 $163,459                                          61,400 $102,059 31-Dec 340312-102059                                                      238,253 $340,312 Balance at December 31, 2014 adjusted $ : calculation is shown below: Classifcation by Month oF Sale Balance in Each Category Estimated % Uncollectible Allowance for Doubtful Accounts November–December 2014 $1,172,500 2% July–October 658,400 12% January–June 444,000 25% Prior to 1/1/14 (154,700 - 64,100) 154,700 82% Total $2,429,600 - Unadjusted balance in allowance for bad debt 102,059 Adjustment at December 31, 2014 (102,059) Balance at December 31, 2014 adjusted is $ (102,059)

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