-4 (Bad-Debt Reporting)
From inception of operations to December 31, 2010, Fortner Corporationprovided for uncollectible accounts receivable under the allowance method: provisions were mademonthly at 2% of credit sales; bad debts written off were charged to the allowance account; recoveries ofbad debts previously written off were credited to the allowance account; and no year-end adjustments tothe allowance account were made. Fortner’s usual credit terms are net 30 days.The balance in the Allowance for Doubtful Accounts was $130,000 at January 1, 2010. During 2010credit 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 2010, and an aging of accounts receivable wasprepared for the first time as of December 31, 2010. A summary of the aging is as follows.
Classification by Balance in Estimated %Month of Sale Each Category UncollectibleNovember–December 2010 $1,080,000 2%July–October 650,000 10%January–June 420,000 25%Prior to 1/1/10 150,000 80%$2,300,000
Based on the review of collectibility of the account balances in the “prior to 1/1/10” aging category,additional receivables totaling $60,000 were written off as of December 31, 2010. The 80% uncollectibleestimate applies to the remaining $90,000 in the category. Effective with the year ended December 31,2010, Fortner adopted a different method for estimating the allowance for doubtful accounts at the amountindicated by the year-end aging analysis of accounts receivable.
Prepare a schedule analyzing the changes in the Allowance for Doubtful Accounts for the yearended December 31, 2010. Show supporting computations in good form. (
: In computing the12/31/10 allowance, subtract the $60,000 write-off).
Prepare the journal entry for the year-end adjustment to the Allowance for Doubtful Accounts bal-ance as of December 31, 2010
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