Chapter 5, Problem 5.11E

Exercise 5.11

LO 5

Bad debts analysis-Allowance, account On January 1, 2016, the balance in Tabor Co.’s Allowance for Bad Debts account was $26,800. During the first 11 months of the year, bad debts expense of $42,924 was recognized. The balance in the Allowance for Bad Debts account at November 30, 2016, was $19,526.

Required:

1. 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.)
2. As the result of a comprehensive analysis, it is determined that the December 31, 2016, balance of the Allowance for Bad Debts account should be $19,000. Show the adjustment required in the horizontal model or in journal entry format.
3. During a conversation with the credit manager, one of Tabor’s sales representatives learns that a $2,460 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 2016 net income.