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(Bad-Debt Reporting) From inception of operations...




(Bad-Debt Reporting) From inception of operations to December 31, 2012, 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, 2012. During 2012, 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 2012, and an aging of accounts receivable was prepared for the first time as of December 31, 2012. A summary of the aging is as follows. Classification by Month of Sale Balance in Each Category Estimated % Uncollectible November?December 2012 $1,080,00 2% July?October 650,000 10% January?June 420,000 25% Prior to 1/1/12 150,000 80% $2,300,000 Based on the review of collectibility of the account balances in the ?prior to 1/1/12? aging category, additional receivables totaling $60,000 were written off as of December 31, 2012. The 80% uncollectible estimate applies to the remaining $90,000 in the category. Effective with the year ended December 31, 2012, 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. Instructions (a) Prepare a schedule analyzing the changes in Allowance for Doubtful Accounts for the year ended December 31, 2012. Show supporting computations in good form. (Hint: In computing the 12/31/12 allowance, subtract the $60,000 write-off).


Paper#8183 | Written in 18-Jul-2015

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