Question

# Based on Problem 7-4 Situation #2: From inception of operations to December 31, 2020, Bridgeport Corporation...

Based on Problem 7-4

Situation #2:

From inception of operations to December 31, 2020, Bridgeport 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. Bridgeport’s usual credit terms are net 30 days.

The balance in Allowance for Doubtful Accounts was \$131,300 (Cr.) at January 1, 2020. During 2020, credit sales totaled \$9,101,900, the provision for doubtful accounts was determined to be \$182,038, \$91,019 of bad debts were written off, and recoveries of accounts previously written off amounted to \$19,950. Bridgeport installed a computer system in November 2020, and aging of accounts receivable was prepared for the first time as of December 31, 2020. A summary of the aging is as follows.

 Classification by Month of Sale Balance in Each Category Estimated % Uncollectible November–December 2020 \$1,275,500 2% July–October 655,900 10% January–June 449,700 27% Prior to 1/1/20 158,000 74% \$2,539,100

Based on the review of collectability of the account balances in the “prior to 1/1/20” aging category, additional receivables totaling \$59,000 were written off as of December 31, 2020. The 74% uncollectible estimate applies to the remaining \$99,000 in the category. Effective with the year ended December 31, 2020, Bridgeport adopted a different method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable.

 Prepare a schedule analyzing the changes in Allowance for Doubtful Accounts for the year ended December 31, 2020. Show supporting computations in good form. (Hint: In computing the 12/31/20 allowance, subtract the \$59,000 write-off.)
1. Prepare a schedule analyzing the changes in Allowance for Doubtful Accounts for the year ended December 31, 2020.
2. Prepare the journal entry for the year-end adjustment to Allowance for Doubtful Accounts balance as of December 31, 2020.

1.

 Balance at January 1 2020 131300 Provision for doubtful debts 182038 Recovery in 2020 of bad debts written off previously 19950 333288 Deduct write-offs for 2020 (91019 + 59000) 150019 Balance at December 31 2020 before change in accounting estimate 183269 Increase due to change in accounting estimate 102510 Balance at December 31 2020 adjusted * 285779

* Calculation of allowance for doubtful accounts

 Category Balance % Doubtful accounts November - December 2020 1275500 2% 25510 July - October 655900 10% 65590 January - June 449700 27% 121419 Prior to 1/1/20 99000 74% 73260 285779

2. Journal entry

 Account Debit Credit Bad debt expense 102510 Allowance for doubtful accounts 102510