From its first day of operations to December 31, 2017, Novak Corp. provided for uncollectible accounts receivable under the allowance method: entries for bad debt expense were made monthly based on 2.40% of credit sales, bad debts that were 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 were made to the allowance account. Novak's usual credit terms were net 30 days, and remain unchanged.

The balance in Allowance for Doubtful Accounts was $184,100 at January 1, 2017. During 2017, credit sales totalled $9.00 million, interim entries for bad debt expense were based on 2.40% of credit sales, $95,300 of bad debts were written off, and recoveries of accounts previously written off amounted to $13,000. Novak upgraded its computer facility in November 2017, and an aging of accounts receivable was prepared for the first time as at December 31, 2017.

A summary of the aging analysis follows:

Classification by Month of SaleBalance in Each CategoryEstimated % Uncollectible

November-December 2017$1,078,0008%July-October 2017635,00013.2%January-June 2017427,50022%Before January 1, 2017145,50063%$2,286,000

Based on a review of how collectible the accounts really are in the "Before January 1, 2017" aging category, additional receivables totalling $68,000 were written off as at December 31, 2017. The 63% uncollectible estimate therefore only applies to the remaining $77,500 in the category. Finally, beginning with the year ended December 31, 2017, Novak adopted a new accounting method for estimating the allowance for doubtful accounts: it now uses the amount indicated by the year-end aging analysis of accounts receivable.

Calculate bad debt expense accrual and year end balance for the year ended December 31, 2017. (Hint: In calculating the allowance amount at December 31, 2017, subtract the $68,000 write off of receivables.)

Bad debt expense accrual$

Year End Balance$

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Prepare the journal entry for the year-end adjustment to the Allowance for Doubtful Accounts balance as at December 31, 2017.(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation

Debit

Credit

(To record adjustment resulting from a change in accounting estimate)

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