At the end of the fiscal year, the Precision Computer Centre has a $21,620 balance in Accounts Receivable. Here is a current schedule of accounts receivable:
Precision Computer Centre
Schedule of Accounts Receivable
July 31, 2014
Taylor Golf……………………………….$ 6,270
Vita Needle………………………………. 10,610
Accu Pac………………………………….. 1,450
Fortune Consulting………………………... 3,290
Total……………………………………….. $21,620
Assignment
Although Accu Pac’s account is not 90 days past due, Freedman has determined that it is necessary to provide for one-half of that balance because the business has closed. Of the remaining balances, 5% may become bad debts at some future point.
Calculate the necessary allowance at the end of the company’s fiscal year; then make the necessary journal entry to record it. Please use a new account, 1022—Allowance for Doubtful Accounts.
State what changes would have been made to the annual financial state- ments that were based on the information given in the Chapter 12 Continuing Problem if the entries covering bad debts transactions had been made at that time.
Suppose that later in the year (assume November 30, 2014), it was obvi- ous that the entire Accu Pac account was uncollectible and must be completely written off. Show the journal entry you would make to record this event. What effect would this have on the net income for the fiscal year ending July 31, 2015?