Concept explainers
From inception of operations to December 31, 2020, Fortner Corporation provided for uncollectible
The balance in Allowance for Doubtful Accounts was $130,000 (Cr.) at January 1, 2020. During 2020, credit sales totaled $9,000,000, the provision for doubtful accounts was determined to be $180,000, $90,000 of bad debts were written off, and recoveries of accounts previously written off amounted to $15,000. Fortner 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 |
||
November–December 2020 | $1,080,000 | 2% | ||
July–October | 650,000 | 10% | ||
January–June | 420,000 | 25% | ||
Prior to 1/1/20 | 150,000 | 80% | ||
$2,300,000 |
Based on the review of collectibility of the account balances in the “prior to 1/1/20” aging category, additional receivables totaling $60,000 were written off as of December 31, 2020. The 80% uncollectible estimate applies to the remaining $90,000 in the category. Effective with the year ended December 31, 2020, Fortner adopted a different method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable.
Instructions
a. 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 $60,000 write-off.)
b. Prepare the
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