Fortini Corporation had record sales in 2014 It began 2014
Fortini Corporation had record sales in 2014. It began 2014 with an Accounts Receivable balance of $475,000 and an Allowance for Doubtful Accounts of $33,000. Fortini recognized credit sales during the year of $6,675,000 and made monthly adjusting entries equal to 0.5% of each month's credit sales to recognize bad debt expense. Also during the year the company wrote off $35,500 of accounts that were deemed to be uncollectible, although one customer whose $4,000 account had been written off surprised management by paying the amount in full in late September.
Including this surprise receipt, $6,568,500 cash was collected on account in 2014.
In preparation for the audited year-end financial statements, the controller prepared the following aged listing of the receivables at December 31, 2014:
(a) Reconcile the 2014 opening balance in Accounts Receivable to the $550,000 ending balance on the controller's aged listing.
(b) Prepare the adjusting entry to bring the Allowance for Doubtful Accounts to its proper balance at year end.
(c) Show how accounts receivable would be presented on the December 31, 2014 statement of financial position.
(d) What is the dollar effect of the year-end bad debt adjustment on the before-tax income?
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