Question
From inception of operations to December 31, 2017, Monty Corporation provided for uncollectible accounts receivable under the allowance method. The provisions are recorded, based on
From inception of operations to December 31, 2017, Monty Corporation provided for uncollectible accounts receivable under the allowance method. The provisions are recorded, based on analyses of customers with different risk characteristics. 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. Montys usual credit terms are net 30 days.
The balance in Allowance for Doubtful Accounts was $148,200 at January 1, 2017. During 2017, credit sales totaled $9,018,900, the provision for doubtful accounts was determined to be $90,189, $90,189 of bad debts were written off, and recoveries of accounts previously written off amounted to $15,190. Monty installed a computer system in November 2017, and an aging of accounts receivable was prepared for the first time as of December 31, 2017. A summary of the aging is as follows.
Classification by Month of Sale | Balance in Each Category | Estimated % Uncollectible | |||
NovemberDecember 2017 | $1,285,900 | 2% | |||
JulyOctober | 669,900 | 10% | |||
JanuaryJune | 436,200 | 25% | |||
Prior to 1/1/17 | 153,600 | 85% | |||
$2,545,600 |
Based on the review of collectibility of the account balances in the prior to 1/1/17 aging category, additional receivables totaling $62,300 were written off as of December 31, 2017. The 85% uncollectible estimate applies to the remaining $91,300 in the category. Effective with the year ended December 31, 2017, Monty adopted a different method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable.
Prepare a schedule analyzing the changes in Allowance for Doubtful Accounts for the year ended December 31, 2017. Show supporting computations in good form. (Hint: In computing the 12/31/17 allowance, subtract the $62,300 write-off.)
MONTY CORPORATION Analysis of Changes in the Allowance for Doubtful Accounts For the Year Ended December 31, 2017 Balance at January 1, 2017 148,200 Provision for doubtful accounts 90,189 Recovery in 2017 of bad debts written off previously 15,190 253579 Write-offs for 2017 153600 P Balance at December 31, 2017 before change in accounting estimate 99979 Increase due to change in accounting estimate during 2017 Balance at December 31, 2017 adjusted Computation of Allowance for Doubtful Accounts at December 31, 2017 Aging Category Balance % Doubtful Accounts Nov-Dec 2017 ,900 25718 July-Oct 669,900 66990 Jan-June 436,200 109050 Prior to 1/1/17 130560 201758Step by Step Solution
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