Question

TravelToday, Inc., disclosed the following rounded amounts (in thousands) concerning the Allowance for Doubtful Accounts on its Form 10-K annual report.

Allowance for Doubtful Accounts (dollars in thousands) Decreases Beginning Increases for Bad Debt for Ending Balance Write-Offs Balance Year Expense $ 4, 250 4,850 1,150 2016 9,500 8,500 13,000 $ 1,450 9, 500 8,500 3,850 5,650 2015 2014

1-a. Prepare a T-account for the Allowance for Doubtful Accounts and enter into it the 2014 amounts from the above schedule. The balance at the beginning of each year in the Allowance for Doubtful Accounts is a credit balance. 1-b Write the T-account in equation format to prove the above items account for the changes in the account.

2. Record summary journal entries for 2015 related to (a) estimating Bad Debt Expense and (b) writing off specific customer account balances.

3. Supply the missing information for 2016.

4. If TravelToday had written off an additional $35 of Accounts Receivable during 2016, by how much would Net Receivables have decreased? How much would Net Income have decreased?

Answer 1

Solution 1a:

Allowance for doubtful Accounts
Particulars	Debit	Credit	Balance
Beg. Bal.			$13,000.00
Bad debts expense		$1,150.00	$14,150.00
Write offs	$5,650.00		$8,500.00
End. Bal			$8,500.00

Solution 1b:

Beginning Balance	+	Increase for bad debts expense	-	Decrease for write offs	=	Ending Balance
$13,000.00	+	$1,150.00	-	$5,650.00	=	$8,500.00

Solution 2:

Journal Entries - Travel today Inc.
Transaction	Particulars	Debit	Credit
a	Bad debts expense Dr	$4,850.00
	To Allowance for doubtful accounts		$4,850.00
	(To record bad debts provision for 2015)
b	Allowance for doubtful accounts Dr	$3,850.00
	To Accounts receivables		$3,850.00
	(To write off receivables)

Solution 3:

Allowance for doubtful accounts	Beginning Balance	+	Increase for bad debts expense	-	Decrease for write offs	=	Ending Balance
2016	$9,500.00	+	$4,250.00	-	$12,300.00	=	$1,450.00

Solution 4:

If TravelToday had written off an additional $35 of Accounts Receivable during 2016, There will be no impact on net receivable and net income.