P7-4B Bad-Debt Reporting From inception of operations to December 31, 2014, Peca
ID: 2526218 • Letter: P
Question
P7-4B Bad-Debt Reporting From inception of operations to December 31, 2014, Pecan 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 adjustments to the allowance account were made. Pecan's usual credit terms are net 30 days written off were credited to the allowance account; and no year-end The balance in Allowance for Doubtful Accounts was $86,000 at January 1, 2014. During 2014, Pecan made credit sales totaled $6,200,000, as of December 1, 2014 provisions for doubtful accounts were 1% of credit sales, $47,000 of bad debts were written off, and recoveries of accounts previously written off amounted to $3,000. Pecan 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. Classification by Balance in Each Category $760,000 201,000 89,000 Estimated % Month of Sale November-December 2014 July-October January-June Uncollectible 30% 21c,7CO 80.000 shoro 90% or R Bol lane $1,130,000 TOTAL Based on the review of collectability of the account bafances in the "prior to 1/1/2014" aging 1 category, additional receivables totaling $30,000 were written off as of December 31,2014. The 5,560 90% uncollectible estimate applies to the remaining $50,000 in the category. Effective with the year ended December 31, 2014, Pecan adopted a different method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable. Instructions (a) 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 12/31/2014 allowance, subtract the $30,000 write-off). (b) Prepare the journal entry for the year-end adjustment to the Allowance for Doubtful Accounts balance as of December 31, 2014.Explanation / Answer
Req 1: Schedule showing ending Allowance for doubtful Accounts Age-group Balance Estimated % Estimated Allowance In AR Uncollectible Nov -Dec 2014 760,000 1% 7600 Jule-October 201,000 8% 16080 Jan-June 89,000 30% 26700 Prior to jan'2014 50,000 90% 45000 Total 1,100,000 95380 Req 2: Allowance for dountful debts (Begininng) 86000 Less: Amount written off -47000 Add: reinstated amount 3000 42000 Less: Bad debts written off at year end -30000 Exisiting balance 12000 Required balance 95380 Bad debts expense 83380 Adjusting entry: Bad debts expense Dr. 83380 Allowance for doubtful accounts 83380
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.