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)
		Beginning				Increases for				Decreases for				Ending
	Year	Balance				Bad Debt Expense				Write-Offs				Balance
	2016	$	8,300			$	3,650			$	?			$	850
	2015		7,300				4,250				3,250				8,300
	2014		11,800				550				5,050				7,300

Required:

1. 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.

2. 1-b. Write the T-account in equation format to prove the above items account for the changes in the account.

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

4. 3. Supply the missing information for 2016.

5. 4. If TravelToday had written off an additional $23 of Accounts Receivable during 2016, by how much would Net Receivables have decreased? How much would Net Income have decreased?

1a. 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. (Enter your answers in thousands.)

1b.

Write the T-account in equation format to prove the above items account for the changes in the account. (Enter your answers in thousands.)

1c.

Record summary journal entries for 2015 related to (a) estimating Bad Debt Expense and (b) writing off specific customer account balances. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Enter your answers in thousands.)

1d.

Supply the missing information:

Allowance for doubtul accounts = 2016

Beginning balance = 8300

Additions charged to bad debts expense = 3650

Write off = ?

Balance ending = 850

1e

If TravelToday had written off an additional $23 of Accounts Receivable during 2016, by how much would Net Receivables have decreased? How much would Net Income have decreased? (Enter your answers in thousands.)

Answer 1

Solutions:

Solutiin 1a:
Allowance for Doubtful Accounts (2014)
Beg. Bal.		11800
		550	Bad debt expense
Write offs	5050
End. Bal.		7300

Solution 1b:
Beginning balance	+	Bad debt expense	-	Write offs	=	Ending balance
11800	+	550	-	5050	=	7300

Solution 2:
Journal entries for 2015
Transaction	General Journal	Debit	Credit
a	Bad debts expense Dr	4250
	To Allowance for Doubtful Accounts		4250
	(To record adjusting entry for bad debts)
b	Allowance for Doubtful Accounts	3250
	To Accounts Receivable		3250
	(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	8300	+	3650	-	11100	=	850

Solution 4:

Net receivable = $0

Net income = $0

Answer 2

1-a. Prepare Allowance for Doubtful Accounts T-Account for 2014 in the following manner:

Allowance for Doubtful Accounts
Date	Particulars	Debit ($)	Date	Particulars	Credit ($)
during the year	Accounts Receivable	5050	01.01.2014	Beginning Balance	11800
			during the year	Bad Debt Expense	550
31.12.2009	Ending Balance	7300
	Total	8500		Total	12350

1-b. Write Allowance for Doubtful Accounts T-Account in equation format in the following manner:

Beginning Balance + Bad Debts Expense during the year – Write offs during the year = Ending Balance

Therefore,

$11,800 + $550 - $5,050 = $7,300

$7,300 = $7,300

2. Prepare journal entries for 2015 in the following manner:

(a)	Bad debt expense estimated and recorded for the year
General Journal
Date	Particulars	Ref.	Debit ($)	Credit ($)
during the year	Bad Debt Expense		4250.00
	Allowance for Doubtful Accounts			4250.00
	(Being bad debt expense estimated and recorded for the year)
(b)	Specific customer account balance is written off from account receivable
General Journal
Date	Particulars	Ref.	Debit ($)	Credit ($)
during the year	Allowance for Doubtful Accounts		3250.00
	Accounts Receivable			3250.00
	(Being specific customer account balance is written off from account receivable)

3. Find out the missing figure in 2016 in the following manner:

Beginning Balance + Bad Debts Expense during the year – Write offs during the year = Ending Balance

Therefore,

$8,300 + $3,650 - Write offs during the year = $850

Write offs during the year = $11,100

4. Net Receivables:

If TravelToday had written off an additional $23 of accounts receivable during 2016, Net receivables shall be unaffected. ‘Net Receivables = Accounts Receivable – Allowance for Doubtful Accounts’. Accounts Receivable has a debit balance while Allowance for Doubtful Accounts has a credit balance. With every write off both ledger balances of Accounts Receivable and Allowance for Doubtful Accounts decreases simultaneously leaving no impact on net receivables at all.

For Example: if Accounts Receivable is $20,000 and Allowance for Doubtful Accounts is $850 therefore Net Receivable shall be $19,150 ($20,000 - $850). And, when an additional $23 of accounts receivable is written off updated ledger balance of Accounts Receivable is $19,977 ($20,000 - $23) and Allowance for Doubtful Accounts is $827 ($850 - $23). Therefore, Net Receivable shall be $19,150 ($19,977 - $827) same as before.

Net Income:

Writing off accounts receivables affects only ledgers of Accounts Receivable and Allowance for Doubtful Accounts. Accounts Receivable is an asset account having a debit balance while Allowance for Doubtful Accounts is a contra-asset account having a credit balance. As Net income is determined through Income Statement which only includes temporary accounts, it can be said with firm certainty that an additional write of $23 of accounts receivable shall not affect Net Income at all.

Also, Net Income has already been decreased at the time of estimation of bad debts through Bad Debt Expense ledger account (Temporary Account), therefore at the time of writing off accounts receivable no figures shall be mentioned in Income Statement. It means Net Income shall remain unaffected when TravelToday writtes off an additional $23 of accounts receivable during 2016.

Answer 3

1 a)

Allowance For Doubtful Debts- 2014
Particulars	Debit	Credit	Balance
Beginning balance (Credit Balance)			11,800
Bad Debt Expenses		550	12,350
Write offs	5,050		7,300
Ending Balance			7,300

1b)

Beginning balance (Credit Balance)	+	Bad Debt Expenses	-	Write offs	=	Ending Balance
11,800	+	550	-	5,050	=	7,300

2)

Journal Entries for 2015
Particulars	Debit	Credit
Bad Debt Expenses	4,250
Allowance For Doubtful Debts		4,250
(Record Adjusting entry for bad debts)
Allowance For Doubtful Debts	3,250
Accounts Receivable		3,250
(Record Adjusting entry for writeoffs)

3) 2016

Beginning balance (Credit Balance)	+	Bad Debt Expenses	-	Write offs	=	Ending Balance
8,300	+	3,650	-	11,100	=	850

(8300+3650-850=11100)

4)

There would be no effect of $23 on Net Accounts Receivable or Net income beacuse $ 23 would be writen off from the allowance of doubtful debt and Accounts Receivable