Question

From inception of operations to December 31, 2020, Metlock Corporation provided for uncollectible accounts receivable under the allowance method. The provisions are recorded, based on analyses of customers with different risk characteristics. Bad debts written off were charged to the allowance account; recoveries of bad debts previously written off were credited to the allowance account, and no year-end adjustments to the allowance account were made. Metlock’s usual credit terms are net 30 days.

The balance in Allowance for Doubtful Accounts was $114,400 (Cr.) at January 1, 2020. During 2020, credit sales totaled $7,920,000, the provision for doubtful accounts was determined to be $158,400, $79,200 of bad debts were written off, and recoveries of accounts previously written off amounted to $13,200. Metlock installed a computer system in November 2020, and an aging of accounts receivable was prepared for the first time as of December 31, 2020. A summary of the aging is as follows.

Classification by Month of Sale		Balance in Each Category			Estimated % Uncollectible
November–December 2020		$950,400			2%
July–October		572,000			10%
January–June		369,600			25%
Prior to 1/1/20		132,000			80%
		$2,024,000

Based on the review of collectibility of the account balances in the “prior to 1/1/20” aging category, additional receivables totaling $52,800 were written off as of December 31, 2020. The 80% uncollectible estimate applies to the remaining $79,200 in the category. Effective with the year ended December 31, 2020, Metlock adopted a different method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable.

Prepare a schedule analyzing the changes in Allowance for Doubtful Accounts for the year ended December 31, 2020. Show supporting computations in good form. (Hint: In computing the 12/31/20 allowance, subtract the $52,800 write-off.)

Answer 1

Metlock Corporation
Analysis of Changes in the Allowance for Doubtful Accounts
For the Year Ended December 31, 2020
Balance at January 1, 2020	$                  114,400.00
Provision for doubtful accounts ($7,920,000 X 2%)	$                  158,400.00
Recovery in 2020 of bad debts written off previously	$                    13,200.00
	$                  286,000.00
Less: write-offs for 2012 ($79,200 + $52,800)	$                  132,000.00
Balance at December 31, 2017 before change in accounting estimate	$                  154,000.00
Increase due to change in accounting estimate during 2019 ($231,968 – $154,000)	$                    77,968.00
Balance at December 31, 2019 adjusted (Schedule 1)	$                  231,968.00
Schedule 1
Computation of Allowance for Doubtful Accounts
at December 31, 2012
Classification by Month of Sale	Balance in Each Category	Estimated  Uncollectible %	Estimated Uncollectible
November–December 2020	$950,400	2%	$19,008
July–October	572,000	10%	$57,200
January–June	369,600	25%	$92,400
Prior to 1/1/20 ($132,000 - $52,800)	79,200	80%	$63,360
	$1,971,200		$231,968