Question

Problem 7-4 (Part Level Submission) From inception of operations to December 31, 2017, Indigo 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. Indigo's usual credit terms are net 30 days. The balance in Allowance for Doubtful Accounts was $136,500 at January 1, 2017. During 2017, credit sales totaled $9,130,600, the provision for doubtful accounts was determined to be $91,306, $91,306 of bad debts were written off, and recoveries of accounts previously written off amounted to $17,640. Indigo 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. Balance in Each Category Estimated % Uncollectible 2% Classification by Month of Sale November-December 2017 July-October January-June Prior to 1/1/17 9% $1,286,600 692,100 435,700 154,500 27% 84% $2,568,900 Based on the review of collectibility of the account balances in the "prior to 1/1/17" aging category, additional receivables totaling $54,100 were written off as of December 31, 2017. The 84% uncollectible estimate applies to the remaining $100,400 in the category. Effective with the year ended December 31, 2017, Indigo adopted a different method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable. (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 $54,100 write-off.) INDIGO CORPORATION Analysis of Changes in the Allowance for Doubtful Accounts For the Year Ended December 31, 2017 Balance at December 31, 2017 before change in accounting estimate Computation of Allowance for Doubtful Accounts at December 31, 2017 Aaina Doubtful

Answer 1

INDIGO CORPORATION Analysis of Changes in the Allowance for Doubtful Accounts For the Year Ended December 31,2017
Beginning balance	$ 136,500
Provision for doubtful accounts (18000000 *2%)	$ 91,306
Recovery in 2017 of bad debts written off previously	$ 17,640
	$ 245,446
Less: write-offs for 2017                ($ 100,400 + $ 54,100)	($ 154,500)
Balance at December 31, 2017 before change in accounting estimate	$ 90,946
Increase due to change in accounting estimate during 2017 - Bal. Fig. ( $289,996 (-) $ 90,946)	$ 199,050
Balance at December 31, 2017 - Adjusted (From Below Schedule)	$ 289,996

Computation of Allowance for Doubtful Accounts at December 31,2017
Aging Category	Balance	Percent	Doubtful Accounts
Nov - Dec 2017	$ 1,286,600	2%	$ 25,732
July -Oct2017	$ 692,100	9%	$ 62,289
Jan - June 2017	$ 435,700	27%	$ 117,639
Prior to 1/1/17	$ 100,400	84%	$ 84,336
Total			$ 289,996