Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 43

Bad debts analysis—Allowance account On January 1, 2010, the balance in Tabor Co.’s Allowance for Bad Debts account was $13,400. During the first 11 months of the year, bad debts expense of $21,462 was recognized. The balance in the Allowance for Bad Debts account at November 30, 2010, was $9,763.

Required:

a. What was the total of accounts written off during the first 11 months? (Hint: Make a T-account for the Allowance for Bad Debts account.)

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b. As the result of a comprehensive analysis, it is determined that the December 31, 2010, balance of the Allowance for Bad Debts account should be $9,500. Show the adjustment required in the horizontal model or in journal entry format.

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c. During a conversation with the credit manager, one of Tabor’s sales representa­tives learns that a $1,230 receivable from a bankrupt customer has not been written off but was considered in the determination of the appropriate year-end balance of the Allowance for Bad Debts account balance. Write a brief expla­nation to the sales representative explaining the effect that the write-off of this account receivable would have had on 2010 net income.

Step 1 of 5

Bad debts analysis – T-accounts (Allowances)

By extracting the information:

Allowance for bad debts balance (1/1/10)

Allowance for bad debts balance (11/30/10)

11 months bad debts expense