Problem 6-8 (AICPA Adapted) From inception of operations, Paramount Company provided for uncollectible accounts receivable under the allowance method using the percentage of sales method. The balance in the allowance for doubtful accounts was P500,000 on January 1, 2019. During the current year, credit sales totaled P20,000,000, interim provisions for doubtful accounts were made at 2% of credit sales, P300,000 of bad debts were written off, and recoveries of accounts previously written off amounted to P50,000. The aging of accounts receivable showed the following summary: Classification Balance Collectible November to December July to October January to June Prior to January 1, 2019 5,000,000 2,000,000 1,000,000 500,000 95% 90% 75% 25% Based on the review of collectibility of the account balances in "prior to January 1, 2019" aging category, additional accounts totaling P100,000 are to be written off on December 31, 2019. Effective with the year ended December 31, 2019, the entity adopted a new accounting method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging of accounts receivable. Required: 1. Determine the allowance for doubtful accounts before adjustment.
Problem 6-8 (AICPA Adapted) From inception of operations, Paramount Company provided for uncollectible accounts receivable under the allowance method using the percentage of sales method. The balance in the allowance for doubtful accounts was P500,000 on January 1, 2019. During the current year, credit sales totaled P20,000,000, interim provisions for doubtful accounts were made at 2% of credit sales, P300,000 of bad debts were written off, and recoveries of accounts previously written off amounted to P50,000. The aging of accounts receivable showed the following summary: Classification Balance Collectible November to December July to October January to June Prior to January 1, 2019 5,000,000 2,000,000 1,000,000 500,000 95% 90% 75% 25% Based on the review of collectibility of the account balances in "prior to January 1, 2019" aging category, additional accounts totaling P100,000 are to be written off on December 31, 2019. Effective with the year ended December 31, 2019, the entity adopted a new accounting method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging of accounts receivable. Required: 1. Determine the allowance for doubtful accounts before adjustment.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Problem 6-8 (AICPA Adapted)
From inception of operations, Paramount Company provided
for uncollectible accounts receivable under the aliowance
method using the percentage of sales method.
The balance in the allowance for doubtful accounts was P500,000
on January 1, 2019.
During the current year, credit sales totaled P20,000,000,
interim provisions for doubtful accounts were made at 2% of
credit sales, P300,000 of bad debts were written off, and
recoveries of accounts previously written off amounted to
P50,000.
The aging of accounts receivable showed the following summary:
Classification
Balance
Collectible
November to December
July to October
January to June
Prior to January 1, 2019
5,000,000
2,000,000
1,000,000
500,000
95%
90%
75%
25%
Based on the review of collectibility of the account balances in
"prior to January 1, 2019" aging category, additional accounts
totaling P100,000 are to be written off on December 31, 2019.
Effective with the year ended December 31, 2019, the entity
adopted a new accounting method for estimating the allowance
for doubtful accounts at the amount indicated by the year-end
aging of accounts receivable.
Required:
1. Determine the allowance for doubtful accounts before
adjustment.
2. Determine the required allowance for doubtful accounts
on December 31, 2019.
3. Prepare adjusting entry to record the doubtful accounts
expense for 2019.
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