Avillion Corporation had a $45,000 debit balance in Accounts receivable and a $3,500 credit balance in Allowance for uncollectibles on December 31, 2017. The company prepared the following aging schedule to record the adjusting entry for bad debts on December 31, 2017.
Age of Receivables Amount Expected Bad Debts
0-30 days old....................$30,000...............................5%
31-90 days old....................10,000................................11
Over 90 days old...................5,000................................30
1. On January 1, 2018, the company learned that one of its customers (Smith Corporation), which owed $2,000, had filed for bankruptcy and could be unable to pay the amount due.
2. On March 1, 2018, Smith Corporation's bankruptcy was finalized and the bankruptcy court notified all of its creditors (including Avillion Corporation) that Smith Corporation will pay 60 cents on the dollar for the amount owed to its creditors.
3. On May 7, 2018, Avillion Corporation received a check from Smith Corporation for the amount indicated by the court.
Required:
1. Provide journal entries to record the preceding transactions in Avillion's books. In addition, using the following table format, show the effects of each transaction on the following financial statement items. Clearly indicate the amount and the direction of the effects (use "+" for increase, "−" for decrease, and "NE" for no effect).
Assets Liabilities Net Income Cash Flow from Operations
Direction of effect
Dollar amount of effect
2. Assume that Avillion had instead prepared the following aging schedule on December 31, 2017:
Age of Receivables Amount Expected Bad Debts
0-30 days old....................$30,000.......................................3%
31-90 days old....................10,000.........................................8
Over 90 days old...................5,000........................................22
Redo requirement (1) using the revised aging schedule.