Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 8 Receivables 389

The following accounts were unintentionally omitted from the aging schedule.

Customer Due Date Balance

Adel Sports & Flies June 21, 2007 $1,500

Buzzer Sports July 30, 2007 3,000

Marabou Flies Sept. 9, 2007 2,500

Midge Co. Sept. 30, 2007 1,100

Adventure Outfitters Oct. 10, 2007 2,500

Pheasant Tail Sports Oct. 17, 2007 600

Red Tag Sporting Goods Oct. 30, 2007 2,000

Ross Sports Nov. 18, 2007 500

Sawyer’s Pheasant Tail Nov. 28, 2007 1,800

Tent Caddis Outfitters Nov. 30, 2007 3,500

Wulff Company Dec. 1, 2007 1,000

Zug Bug Sports Jan. 6, 2008 6,200

Zahovik Company has a past history of uncollectible accounts by age category, as follows:

Percentage

Age Class Uncollectible

Not past due 2%

1–30 days past due 5

31–60 days past due 10

61–90 days past due 25

91–120 days past due 45

Over 120 days past due 90

Instructions

1. Determine the number of days past due for each of the preceding accounts.


2. Complete the aging-of-receivables schedule.


3. Estimate the allowance for doubtful accounts, based on the aging-of-receivables schedule.


4. Assume that the allowance for doubtful accounts for Zahovik Company has a debit balance
   of $2,600 before adjustment on December 31, 2007. Journalize the adjusting entry for uncol-
   lectible accounts.

Franklin Company, a telephone service and supply company, has just completed its fourth year

of operations. The direct write-off method of recording bad debt expense has been used during

the entire period. Because of substantial increases in sales volume and the amount of uncol-

lectible accounts, the firm is considering changing to the allowance method. Information is re-

quested as to the effect that an annual provision of – 43 % of sales would have had on the amount

of bad debt expense reported for each of the past four years. It is also considered desirable to

know what the balance of Allowance for Doubtful Accounts would have been at the end of each

year. The following data have been obtained from the accounts:

Uncollectible Year of Origin of

Accounts Accounts Receivable Written

Written Off as Uncollectible

Year Sales Off 1st 2nd 3rd 4th

1st $ 650,000 $2,500 $2,500

2nd 760,000 2,950 1,900 $1,050

3rd 950,000 5,700 700 4,000 $1,000

4th 1,800,000 7,800 1,200 2,550 $4,050

Alternate Problem
8-3B

Compare two methods of
accounting for uncollectible
receivables

Goals3, 4

1. Year 4: Balance of
   allowance account, end of
   year, $12,250