Response to the following problem:
The Albring Company sells electronics equipment and has grown rapidly in the last year by adding new customers. The audit partner has asked you to evaluate the allowance for doubtful accounts at December 31, 2013. Comparative information on sales and accounts receivable is included below:
|
|
Year Ended
12/31/13
|
Year Ended
12/31/12
|
|
Sales
|
$12,169,876
|
$10,452,513
|
|
Accounts Receivable
|
1,440,381
|
1,030,933
|
|
Allowance for doubtful accounts
|
90,000
|
75,000
|
|
Bad debt charge-offs
|
114,849
|
103,471
|
|
Accounts Receivable:
|
|
|
|
0-30 days
|
$ 897,035
|
$ 695,041
|
|
30-60 days
|
254,269
|
160,989
|
|
60-90 days
|
171,846
|
105,997
|
|
Over 90 days
|
117,231
|
68,906
|
|
TOTAL
|
$ 1,440,381
|
$ 1,030,933
|
Required:
a. Identify what tests of controls and substantive tests of transactions you recommend be performed before conducting your analysis of the allowance for doubtful accounts.
b. Perform analytical procedures to evaluate whether the allowance is fairly stated at December 31, 2013. Assume performance materiality for the allowance account is $15,000.