Question

Wheelys, Inc. designs and sells footwear with a wheel in the heel, worn by sometimes–annoying kids at shopping malls. It recently disclosed the following information concerning the Allowance for Doubtful Accounts in its annual report.

SCHEDULE II Valuation and Qualifying Accounts (dollars in thousands)
Allowance for Doubtful Accounts	Balance at Beginning of Year			Additions Charged to Bad Debt Expense			Write- Offs			Balance at End of Year
2017	$	189		$	0		$	69		$	120
2016		410			333			554			189
2015		130			435			?			410

1-a. Complete the T-account for the Allowance for Doubtful Accounts by entering into it the 2017 amounts from the above schedule. (Enter your answers in thousands.)

1-b. Complete the T-account in equation format given below to prove that the above items account for the changes in the account. (Enter your answers in thousands.)
3. Record summary journal entries for 2016 related to (a) estimating Bad Debt Expense and (b) writing off specific balances. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in thousands.)

4. Supply the missing dollar amount for 2015. (Enter your answer in thousands.)

5-a. If Wheelys had written off an additional $20 of Accounts Receivable during 2017 and the ending allowance balance was estimated to be $120 (dollars in thousands), will net receivables be affected?
5-b. If Wheelys had written off an additional $20 of Accounts Receivable during 2017 and the ending allowance balance was estimated to be $120 (dollars in thousands), will the net income be affected?

Answer 1

Solution 1a and 1b:

Solution 3:

Solution 4:

Solution 5a:

No, net receivables will not be affected as write off amount will be deducted from both accounts receivable and allowance account balance.

Solution 5b:

No, net income will not be affected as write off amount will be charged to allowance account and hence no effect on net income.