Reference no: EM132254659

Question - From its first day of operations to December 31, 2017, Ayayai Corp. provided for uncollectible accounts receivable under the allowance method: entries for bad debt expense were made monthly based on 2.00% of credit sales, bad debts that were written off were charged to the allowance account, recoveries of bad debts previously written off were credited to the allowance account, and no year-end adjustments were made to the allowance account. Ayayai's usual credit terms were net 30 days, and remain unchanged.

The balance in Allowance for Doubtful Accounts was $184,200 at January 1, 2017. During 2017, credit sales totalled $9.25 million, interim entries for bad debt expense were based on 2.00% of credit sales, $94,600 of bad debts were written off, and recoveries of accounts previously written off amounted to $15,100. Ayayai upgraded its computer facility in November 2017, and an aging of accounts receivable was prepared for the first time as at December 31, 2017.

A summary of the aging analysis follows:

Based on a review of how collectible the accounts really are in the "Before January 1, 2017" aging category, additional receivables totalling $69,400 were written off as at December 31, 2017. The 58% uncollectible estimate therefore only applies to the remaining $71,600 in the category. Finally, beginning with the year ended December 31, 2017, Ayayai adopted a new accounting method for estimating the allowance for doubtful accounts: it now uses the amount indicated by the year-end aging analysis of accounts receivable.

Required -

Calculate bad debt Expense accrual and yearend balance for the year ended December 31, 2017.

Prepare the journal Entry for the year-end adjustment to the Allowance for Doubtful Accounts balance as at December 31, 2017.