Question
From inception of operations to December 31, 2015, Harris Corporation provided for uncollectible accounts receivable under the allowance method. Provisions were made monthly at 2%
From inception of operations to December 31, 2015, Harris 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. Harris's usual credit terms are net 30 days.
The balance in the Allowance for Doubtful Accounts was $130,000 at January 1, 2016. During 2016, 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. Harris upgraded its computer facility in November 2016, and an aging of accounts receivable was prepared for the first time as of December 31, 2016. A summary of the aging is as follows:
Classification by Month of Sale Balance in Each Category Estimated % Uncollectible
Nov.-Dec. 2016 $1,140,000 2%
July- Oct $600,000 10%
Jan.-June $400,000 25%
PRIOR to 1/1/2016 $130,000 75%
$2,270,000
Based on the review of collectibility of the account balances in the "prior to 1/1/2016" aging category, additional receivables totaling $60,000 were written off as of December 31, 2016. Effective with the year ended December 31, 2016, Harris adopted a new accounting method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable.
Required:1. Prepare a schedule analyzing the changes in the allowance for doubtful accounts for the year ended December 31, 2016. Show supporting computations in good form.2. Prepare the journal entry for the year-end adjustment to the Allowance for Doubtful Accounts balance as of December 31, 2016.
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