Question
From inception of operations to December 31, 2020, Whispering Corporation provided for uncollectible accounts receivable under the allowance method. The provisions are recorded, based on
From inception of operations to December 31, 2020, Whispering 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. Whisperings usual credit terms are net 30 days. The balance in Allowance for Doubtful Accounts was $135,200 (Cr.) at January 1, 2020. During 2020, credit sales totaled $9,360,000, the provision for doubtful accounts was determined to be $187,200, $93,600 of bad debts were written off, and recoveries of accounts previously written off amounted to $15,600. Whispering installed a computer system in November 2020, and an aging of accounts receivable was prepared for the first time as of December 31, 2020. A summary of the aging is as follows.
Classification by Month of Sale | Balance in Each Category | Estimated % Uncollectible | |||
NovemberDecember 2020 | $1,123,200 | 2% | |||
JulyOctober | 676,000 | 10% | |||
JanuaryJune | 436,800 | 25% | |||
Prior to 1/1/20 | 156,000 | 80% | |||
$2,392,000 |
Based on the review of collectibility of the account balances in the prior to 1/1/20 aging category, additional receivables totaling $62,400 were written off as of December 31, 2020. The 80% uncollectible estimate applies to the remaining $93,600 in the category. Effective with the year ended December 31, 2020, Whispering 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, 2020. Show supporting computations in good form. (Hint: In computing the 12/31/20 allowance, subtract the $62,400 write-off.)
WHISPERING CORPORATION Analysis of Changes in the Allowance for Doubtful Accounts For the Year Ended December 31, 2020 Balance at January 1, 2020 $ 135,200 140,192 Balance at December 31, 2020 adjusted $ > 324,064Step by Step Solution
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