From inception of operations in 2010, Summit carried no allowance for doubtful accounts. Uncollectible receivables were expensed

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From inception of operations in 2010, Summit carried no allowance for doubtful accounts. Uncollectible receivables were expensed as written-off, and recoveries were credited to income as collected. On March 1, 2014 (after the 2013 financial statements were issued), management recognized that Summit's accounting policy with respect to doubtful accounts was not correct, and determined that an allowance for doubtful accounts was necessary. A policy was established to maintain an allowance for doubtful accounts based on Summit's historical bad debt loss percentage applied to year-end accounts receivable. The historical bad debt loss percentage is to be recomputed each year based on the relationship of net write-offs to credit sales for all available past years up to a maximum of 5 years.

Information from Summit's records for 5 years is as follows:

From inception of operations in 2010, Summit carried no allowance

Accounts receivable balances were $1,250,000 and $1,460,000 at December 31, 2013, and December 31, 2014, respectively Credit sales were.
Required:
1. Prepare the journal entry, with appropriate explanation, to set up the Allowance for Doubtful Accounts as of January 1, 2014. Disregard income taxes.
2. Prepare a schedule analyzing the changes in the Allowance for Doubtful Accounts account for the year ended
December 31, 2014.

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
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Related Book For  book-img-for-question

Intermediate Accounting Reporting and Analysis

ISBN: 978-1111822361

1st edition

Authors: James M. Wahlen, Jefferson P. Jones, Donald Pagach

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