Question

Background: This is a continuation of theactivities at TECHNOGYM in January, 2017. As in past activities,TECHNOGYM uses a Jan. 1 – Dec. 31 financial year.

Exercise for Accounts Receivable:

TECHNOGYM management does not expect there to be any change inthe collectability of its credit sales related to its normaloperations. On Dec. 31, 2016, the unadjusted balance of theAccounts Receivable balance was $17,607,500 and the Allowance forDoubtful Accounts balance was $20,000 (credit). TECHNOGYM uses theAccounts Receivable approach to estimate bad debts. The agingschedule at Dec. 31, 2016 is summarized below:

Days outstanding	% of Accts Rec	Est. % Uncollectible
0-30 days	40%	0.3%
30-60 days	35%	0.8%
60-90 days	15%	10.0%
>90 days	10%	30.0%

Requirement 1: Develop an aging schedule to show yourcalculations of the total expected uncollectible amount for2016.

Days Outstanding	% of Accts Rec	$ of Accts Rec	Est. % Uncollectible	Est. $ Uncollectible
					Total $Uncollectible

Requirement 2: Show your calculation of the appropriatedollar amounts, then show the adjusting journal entry (if any) thatis needed on Dec. 31, 2016 related to this issue. Remember toshow the journal entry in proper form!

Requirement 3: TECHNOGYM on May 1^st , 2017learns that another customer went bankrupt and this customer’soutstanding accounts receivable balance at Dec. 31 2016 is 900,000.Does TECHNOGYM need to record a journal entry for this news? IfYes, what should the journal entry be? Also, indicate the immediateeffect of this journal entry on the income statement for2017.

Check one: o Yes, a journal entry is needed; o No journal entry isrequired

If Yes, Journal Entry:

IMMEDIATE impact on the income statement (check one):

o Increase Income oDecrease Income o No impact on Income

Requirement 4: What is the ending balance of theAllowance for doubtful accounts at May 31, 2017? Checkone.

o $862,768 creditbalance o $862,768 debitbalance

o $37,232 debitbalance o $37,232 creditbalance

o $842,768 creditbalance o $842,768 debitbalance

o $57,232 creditbalance o $57,232 debitbalance

Requirement 5: Based on the bankrupt of its customer inMay 2017, the management re-evaluate the collection risk ofTECHNOGYM and conclude the risk is significantly higher than theypreviously thought. Which of the following would be an appropriateaction for the management to take? Check one.

o Keep using the same uncollectiblerates from the past

o Go back to increase the 2016allowance for doubtful accounts to avoid a debit balance of theallowance for doubtful accounts after the write-off of the $900,000account

o Increase the uncollectible rates toincrease the amount of allowance for doubtful accounts the companytakes from 2017 forward

o Be happy about how it takesallowance for doubtful accounts because neither a debit balance ora credit balance of the allowance tells the management anythingabout whether there needs an adjustment to the allowance takingpractice