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Problem 7-4 From its first day of operations to December 31, 2017, Cheyenne Corp. provided for uncollectible accounts receivable under the allowance method: entries for
Problem 7-4 From its first day of operations to December 31, 2017, Cheyenne Corp. provided for uncollectible accounts receivable under the allowance method: entries for bad debt expense were made monthly based on 2.05% 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. Cheyenne's usual credit terms were net 30 days, and remain unchanged. The balance in Allowance for Doubtful Accounts was $181,400 at January 1, 2017. During 2017, credit sales totaled $9.25 million, interim entries for bad debt expense were based on 2.05% of credit sales, $96,000 of bad debts were written off, and recoveries of accounts previously written off amounted to $13,400. Cheyenne 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: Estimated % Uncollectible 8% 12.1% 22% 58% Classification by Month of Sale Balance in Each Category $1,081,000 652,000 411,000 147,000 $2,291,000 November-December 2017 July-October 2017 January-June 2017 Before January 1, 2017 Based on a review of how collectible the accounts really are in the "Before January 1, 2017" aging category, additional receivables totalling $70,000 were written off as at December 31, 2017. The 58% uncollectible estimate therefore only applies to the remaining $77,000 in the category. Finally, beginning with the year ended December 31, 2017, Cheyenne adopted a new accounting method for estimating the alowance 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 $70,000 write off of receivables.) Bad debt expense accrual $ Year End Balance
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