Phillips Manufacturing sells on account to golf pro shops and general sporting goods retailers. In its financial statements for the year
ended December 31, 2018, Phillips reported the following balances and changes in the Allowance for Doubtful Accounts (in
thousands):
Balance at
Beginning of Period
$ 3,600
Charged to Bad Debt
Expense
$ 720
Amounts Written off
$ 1,120
Balance at End of
Period
$ 3,200
Required:
1-a. Create a T-account for the Allowance for Doubtful Accounts and enter into it the amounts from the above schedule. TIP: The
allowance increases when estimates are charged to Bad Debt Expense and when recoveries are reported. The allowance
decreases when accounts are written off.
1-b. Write the T-account in equation format to prove that the above items account for the changes in the account.
2. Record summary journal entries related to (a) estimating bad debt expense and (b) write-offs of specific balances during the year.
3. If Phillips had written off an additional $120 (thousand) of accounts receivable during the period, by how much would Net
Receivables have decreased? How much would Net Income have decreased?