Exam 20: Accounting Changes

Anfield Corp.is analyzing its accounts receivable for purposes of preparing its second- quarter financial report for June 30,2017.For interim reporting,the company uses the percentage-of-sales method to estimate bad debts.During this analysis,Anfield identified an account for $42,000 that should have been written off in the first quarter ended March 31,2017 but was actually written off in May 2017. The following table provides information relating to Anfield accounts receivables after recording the provision for bad debts for the quarter but prior to the discovery of the $42,000 error: March , June , Accounts receivable - gross 2,480,000 \ 2,560,000 Allowance for doubtful accounts (183,000) (195,000) Accounts receivable-net 2,297,000 \ 2,365,000 Bad debts expense \ 245,000 \ 278,000 The $42,000 should have been written off in the first quarter (Q1),so accounts receivable (A/R)and allowance for doubtful accounts (ADA)were overstated by this amount.However,since the company estimates bad debts using the percentage-of-sales method,the missing write-off did not have an effect on income. The account was eventually written off in the second quarter (Q2),so the balance sheet is correct by June 30,2017.In summary,no adjusting entry needs to be made.

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