Question

PA8-2 Interpreting Disclosure of Allowance for Doubtful Accounts [LO 8-2]

TravelToday, Inc., disclosed the following rounded amounts (in thousands) concerning the Allowance for Doubtful Accounts on its Form 10-K annual report.

	Allowance for Doubtful Accounts
	(dollars in thousands)
		Beginning				Increases for				Decreases for				Ending
	Year	Balance				Bad Debt Expense				Write-Offs				Balance
	2016	$	9,100			$	4,050			$	?			$	1,250
	2015		8,100				4,650				3,650				9,100
	2014		12,600				950				5,450				8,100

Required:

1. 1-a. Prepare a T-account for the Allowance for Doubtful Accounts and enter into it the 2014 amounts from the above schedule. The balance at the beginning of each year in the Allowance for Doubtful Accounts is a credit balance.

2. 1-b. Write the T-account in equation format to prove the above items account for the changes in the account.

3. 2. Record summary journal entries for 2015 related to (a) estimating Bad Debt Expense and (b) writing off specific customer account balances.

4. 3. Supply the missing information for 2016.

5. 4. If TravelToday had written off an additional $31 of Accounts Receivable during 2016, by how much would Net Receivables have decreased? How much would Net Income have decreased?

Complete this question by entering your answers in the tabs below.

• Req 1A
• Req 1B
• Req 2
• Req 3
• Req 4

Prepare a T-account for the Allowance for Doubtful Accounts and enter into it the 2014 amounts from the above schedule. The balance at the beginning of each year in the Allowance for Doubtful Accounts is a credit balance. (Enter your answers in thousands.)

	Allowance for Doubtful Accounts Beg. Bal. 12,600 950 Bad Debt Expense Write-Offs 5,450 End. Bal. 8,100

• Req 1A

Answer 1

Solution 1-a:

Allowance for Doubtful Accounts (2014)

Beg. Bal.		12,600
		950	Bad debt expense
Write-offs	5,450
End. Bal.		8,100

Solution 1-b:

Beginning balance	+	Bad debt expense	-	Write-offs	=	Ending balance
12,600	+	950	-	5,450	=	8,100

Solution 2:

Journal entries for 2015

Transaction	General Journal	Debit	Credit
a	Bad debts expense Dr	4,650
	To Allowance for Doubtful Accounts		4,650
	(To record adjusting entry for bad debts)
b	Allowance for Doubtful Accounts	3,650
	To Accounts Receivable		3,650
	(To record adjusting entry for write-offs)

Solution 3:

Allowance for Doubtful Accounts	Balance at beginning of the year	+	Additions charged to Bad debt expense	-	Write offs	=	Balance at End of the year
2016	9,100	+	4,050	-	11,900	=	1,250

Solution 4:

Decrease in Net receivables = $0

Decrease in Net Income = $0

Writing off an additional account receivable will not effect both the net receivables and net income, because it will be written off from allowance for Doubtful accounts and will be reduced from both accounts receivables and allowance for Doubtful accounts.