SHOW LIST OF ACCOUNTS LINK TO TEXT Account Titles and Explanation Debit Credit (
ID: 341961 • Letter: S
Question
SHOW LIST OF ACCOUNTS
LINK TO TEXT
Account Titles and Explanation
Debit
Credit
(To record adjustment resulting from a change in accounting estimate)
Please SHOW the final answer/number for Bad debt expense accrual and yer and balance cearly.
From its first day of operations to December 31, 2017, Cheyenne Corp. provided for uncollectible accounts receivable under the allowance method: entries for bad debt expense were made monthly based on 2.05% of credit sales, bad debts that were 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 were made to the allowance account. Cheyenne’s usual credit terms were net 30 days, and remain unchanged.The balance in Allowance for Doubtful Accounts was $182,800 at January 1, 2017. During 2017, credit sales totalled $9.20 million, interim entries for bad debt expense were based on 2.05% of credit sales, $94,200 of bad debts were written off, and recoveries of accounts previously written off amounted to $15,500. Cheyenne upgraded its computer facility in November 2017, and an aging of accounts receivable was prepared for the first time as at December 31, 2017.
A summary of the aging analysis follows:
Classification by Month of Sale Balance in Each Category Estimated % Uncollectible November-December 2017 $1,091,000 8% July-October 2017 641,000 12.6% January-June 2017 423,500 21% Before January 1, 2017 154,000 65% $2,309,500
Based on a review of how collectible the accounts really are in the “Before January 1, 2017” aging category, additional receivables totalling $65,000 were written off as at December 31, 2017. The 65% uncollectible estimate therefore only applies to the remaining $89,000 in the category. Finally, beginning with the year ended December 31, 2017, Cheyenne adopted a new accounting method for estimating the allowance for doubtful accounts: it now uses the amount indicated by the year-end aging analysis of accounts receivable.
Explanation / Answer
Cheyenne Corp. Analysis of Changes in the Allowance for Doubtful Accounts For the Year Ended December 31, 2017 Balance at January 1, 2017 $182,800.00 Provision for doubtful accounts ($9,200,000 X 2.05%) $188,600.00 Recovery in 2017 of bad debts written off previously $15,500.00 $386,900.00 Less: write-offs for 2012 ($94,200 + $65,000) $159,200.00 Balance at December 31, 2017 before change in accounting estimate $227,700.00 Increase due to change in accounting estimate during 2017 ($314,831 – $227,700) $87,131.00 Balance at December 31, 2017 adjusted (Schedule 1) $314,831.00 Schedule 1 Computation of Allowance for Doubtful Accounts at December 31, 2017 Classification by Month of Sale Balance in Each Category Estimated % Uncollectible Doubtful Accounts November-December 2017 $1,091,000.00 8.00% $87,280.00 July-October 2017 $641,000.00 12.60% $80,766.00 January-June 2017 $423,500.00 21.00% $88,935.00 Before January 1, 2017 * $89,000.00 65.00% $57,850.00 $2,244,500.00 $314,831.00 * $154,000 - $65000 = $89000 Prepare the journal entry for the year-end adjustment to the Allowance for Doubtful Accounts balance as at December 31, 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit Bad Debt Expense $87,131.00 Allowance for Doubtful Accounts $87,131.00 (To record adjustment resulting from a change in accounting estimate)
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