From inception of operations to December 31, 2009, Harris Corporation provided for uncollectible accounts receivable under the allowance method: Provisions were made monthly at 2% of credit sales; bad debts written off were charged to the allowance account; recoveries of bad debts previously written off were credited to the allowance account; and no yearend adjustments to the allowance account were made. Harris's usual credit terms are net 30 days.
The balance in the Allowance for Doubtful Accounts was $130,000 at January 1, 2010. During 2010, credit sales totaled $9,000,000, interim provisions for doubtful accounts were made at 2% of credit sales, $90,000 of bad debts were written off, and recoveries of accounts previously written off amounted to $15,000. Harris upgraded its computer facility in November 2010 and an aging of accounts receivable was prepared for the first time as of December 31, 2010. A summary of the aging is as follows:
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Based on the review of collectibility of the account balances in the prior to 1/1/10 aging category, additional receivables totaling $60,000 were written off as of December 31, 2010. Effective with the year ended December 31, 2010, Harris adopted a new accounting method for estimating the allowance for doubtful accounts at the amount indicated by the yearend aging analysis of accounts receivable.
Required:
1. Prepare a schedule analyzing the changes in the allowance for doubtful accounts for the year ended December 31, 2010. Show supporting computations in good form.
2. Prepare the journal entry for the yearend adjustment to the Allowance for Doubtful Accounts balance as of December 31,2010.