From inception of operations to December 31, 2020, MetlockCorporation provided for uncollectible accounts receivable underthe allowance method. The provisions are recorded, based onanalyses of customers with different risk characteristics. Baddebts written off were charged to the allowance account; recoveriesof bad debts previously written off were credited to the allowanceaccount, and no year-end adjustments to the allowance account weremade. 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 accountspreviously written off amounted to $13,200. Metlock installed acomputer system in November 2020, and an aging of accountsreceivable 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 inthe “prior to 1/1/20” aging category, additional receivablestotaling $52,800 were written off as of December 31, 2020. The 80%uncollectible estimate applies to the remaining $79,200 in thecategory. Effective with the year ended December 31, 2020, Metlockadopted a different method for estimating the allowance fordoubtful accounts at the amount indicated by the year-end aginganalysis of accounts receivable.
Prepare a schedule analyzing the changes in Allowance forDoubtful Accounts for the year ended December 31, 2020. Showsupporting computations in good form. (Hint: In computingthe 12/31/20 allowance, subtract the $52,800 write-off.)
