Chapter 8, Problem 3ME

Reporting Accounts Receivable and Recording Write-Offs Using the Allowance Method

On December 31, 2017, Extreme Fitness has adjusted balances of $800,000 in Accounts Receivable and $55,000 in Allowance for Doubtful Accounts. On January 2, 2018, the company learns that certain customer accounts are not collectible, so management authorizes a write-off of these accounts totaling $10,000.

1. a. Show how the company would have reported its receivable accounts on December 31, 2017. As of that date, what amount did Extreme Fitness expect to collect?
2. b. Prepare the journal entry to write off the accounts on January 2, 2018.
3. c. Assuming no other transactions occurred between December 31, 2017, and January 3, 2018, show how Extreme Fitness would have reported its receivable accounts on January 3, 2018. As of that date, what amount did Extreme Fitness expect to collect? Has this changed from December 31, 2017? Explain why or why not.