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Problem 7-4 (Part Level Submission) From inception of operations to December 31, 2017, Skysong Corporation provided...

Problem 7-4 (Part Level Submission)

From inception of operations to December 31, 2017, Skysong Corporation provided for uncollectible accounts receivable under the allowance method. The provisions are recorded, based on analyses of customers with different risk characteristics. Bad debts 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 to the allowance account were made. Skysong’s usual credit terms are net 30 days.

The balance in Allowance for Doubtful Accounts was $145,500 at January 1, 2017. During 2017, credit sales totaled $9,135,400, the provision for doubtful accounts was determined to be $91,354, $91,354 of bad debts were written off, and recoveries of accounts previously written off amounted to $17,970. Skysong installed a computer system in November 2017, and an aging of accounts receivable was prepared for the first time as of December 31, 2017. A summary of the aging is as follows.

Classification by
Month of Sale

Balance in
Each Category

Estimated %
Uncollectible

November–December 2017 $1,184,700 2%
July–October 696,600 10%
January–June 435,900 23%
Prior to 1/1/17 161,800 75%
$2,479,000

Based on the review of collectibility of the account balances in the “prior to 1/1/17” aging category, additional receivables totaling $65,900 were written off as of December 31, 2017. The 75% uncollectible estimate applies to the remaining $95,900 in the category. Effective with the year ended December 31, 2017, Skysong adopted a different method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable.

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(a)

Prepare a schedule analyzing the changes in Allowance for Doubtful Accounts for the year ended December 31, 2017. Show supporting computations in good form. (Hint: In computing the 12/31/17 allowance, subtract the $65,900 write-off.)

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Answer #1
Beginning Balance 145500
Provision during the year 91354
Write off -91354
Recoveries 17970
Write off -65900
Total changes (A) 97570
Ending balance(B) 314961 (1184700*2%+696600*10%+435900*23%+161800*75%)
Bad debt expense(A-B) 217391
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