Chapter 8, Problem 2CP

Interpreting Disclosure of Allowance for Doubtful Accounts

Callaway Golf Company sells on account to golf pro shops and general sporting goods retailers. In its financial statements for the year ended December 31, 2015, Callaway reported the following balances and changes in the Allowance for Doubtful Accounts (in thousands):

Required:

1. 1. Create a T-account for the Allowance for Doubtful Accounts and enter into it the amounts from the above schedule. Then write the T-account in equation format to prove that the above items account for the changes in the account.

   TIP: The allowance increases when estimates are charged to Bad Debt Expense and when recoveries are reported. The allowance decreases when accounts are written off.

2. 2. Record summary journal entries related to (a) estimating bad debt expense and (b) write-offs of specific balances during the year.
3. 3. If Callaway had written off an additional $100 (thousand) of accounts receivable during the period, by how much would Net Receivables have decreased? How much would Net Income have decreased?