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Problem 7-4 From its ﬁrst day of operations to December 31, 2017, Ayayai Corp. provided for uncoliectible accounts receivable under the allowance method: entries for bad debt expense were made monthly basedon 2.00% of credit sales, bad debts that were written off were charged to the allowance account, recoveries of bad debts previously written oﬁ were credited to the allowance account, and no year-end adjustments were made to the allowance account. Avayai’s usual credit terms were net 30 days, and remain unchanged. The balance in Allowance for Doubtful Accounts was $184,200 at January 1, 201?. During 201?, credit sales totalled $9.25 million, interim entries for bad debt expense were based on 2.00% of creditsales, $94,600 of bad debts were written off, and recoveries of accounts previously written off amounted to $15,100. Ayayai upgraded its computer facility in November 2017, and an aging of accounts receivable was prepared for the ﬁrst time as at December 31, 2017. A summary of the aging analysis follows: Classiﬁcation by Month ofSale Balance in Each Category Estimated % uncolleclible NovemberiDecember 2017 $1,074,000 8% July-October 2017 656,000 12.6% January-June 201? 421,500 21% Before January 1, 2017 141,000 58%$2,292,500 Based on a review of how collectible the accounts really are in the “Before January 1, 2017″ aging category, additional receivables totalling $69,400 were written off as at December 31, 2017. The 58%uncollectible estimate therefore only applies to the remaining $71,600 in the category. Finally, beginning with the year ended December 31, 201?, Ayayai adopted a new accounting method forestimating the allowance for doubtful accounts: it now uses the amount indicated by the year-end aging analysis of accounts receivable.
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