CMA 1289 P4 Q23 (Topic: Accounts Receivable)

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  • #239113

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    alice picault
    Participant
    Should we always assume that a beginning balance of CECL allowance will be written off? The question was a bit misleading without information on recoveries.
     
    3. Question ID: CMA 1289 P4 Q23 (Topic: Accounts Receivable)Brighton Corporation formerly estimated its credit loss expense as 1.5% of credit sales. It now uses the current expected credit loss (CECL) model to estimate credit loss expense using an accounts receivable aging analysis along with other relevant information. The aging schedule of Brighton’s accounts receivable at November 30, 20X4, based upon past collection experience, information about current conditions, and reasonable and supportable forecasts that affect the collectibility of the outstanding balances is presented as follows.

    Days
    <u>Outstanding</u>
    <u>Amount</u> Probability
    <u>of Collection</u>
    0-30 days $640,000 0.98
    31-60 days 180,000 0.92
    61-90 days 95,000 0.75
    over 90 days <u>   40,000</u> 0.60
      $955,000  

    Total sales for the 20X3-X4 fiscal year were $6,500,000, of which 85% were on credit. The allowance for credit losses account had a credit balance of $76,500 on December 1, 20X3, and a debit balance of $3,400 on November 30, 20X4, before any entry to record credit loss expense for the 20X3-X4 fiscal year.

    The value of the accounts receivable written off by Brighton Corporation during the 20X3-X4 fiscal year is

    • A. $73,100
    • B. $79,900 correct
    • C. $76,500
    • D. $79,475

    Correct Answer Explanation for B:

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  • #239116

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    Lynn Roden
    HOCK international

    Hello alice picault,

    Every question is different, but since this question says nothing about any recoveries, there is nothing you can do but assume there were no recoveries. If there had been any recoveries, it would have been impossible to answer the question because the amount of recoveries would have been unknown. Thus, in this particular question, we must assume there were no recoveries in order to answer the question.

    But the conclusion that the full beginning balance in the allowance account was written off during the year is unavoidable in this question because the allowance account started the year with a credit balance and ended the year with a debit balance.

    Lynn

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