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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) Beginning Increases for Decreases for Balance Bad Debt Expense Write-offs 9.109 4,050 8,100 4,650 3,650 12,600 950 5,450 Year 2016 2015 2014 $ Ending Balance 1.25e 9,100 8,100 Required: 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 Travel Today had written off an additional $31 of Accounts Receivable during 2016, by how much would Net Receivables have decreased? How much would Net Income have decreased?

Answer 1

Solution 1-a:

Allowance for Doubtful Accounts (2014)
Beg. Bal.		12,600
		950	Bad debt expense
Write offs	5,450
End. Bal.		8,100

Solution 1-b:

Beginning balance	+	Bad debt expense	-	Write offs	=	Ending balance
12,600	+	950	-	5,450	=	8,100

Solution 2:

Journal entries for 2015
Transaction	General Journal	Debit	Credit
a	Bad debts expense Dr	4,650
	To Allowance for Doubtful Accounts		4,650
	(To record adjusting entry for bad debts)
b	Allowance for Doubtful Accounts	3,650
	To Accounts Receivable		3,650
	(To record adjusting entry for write offs)

Solution 3:

Allowance for Doubtful Accounts	Balance at beginning of the year	+	Additions charged to Bad debt expense	-	Write offs	=	Balance at End of the year
2016	9,100	+	4,050	-	14,400	=	1,250

Solution 4:

Decrease in Net Receivables = $0

Decrease in Net Income = $0

Since additional write off will also be done from both Allowance account and accounts receivable, Therefore there will be no effect on Net accounts receivables and net income.