CMA 1289 P4 Q23 (Topic: Accounts Receivable)
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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.
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:
Accounts are written off by debiting the allowance account and crediting accounts receivable. The value of accounts receivable written off during the year is the amount of change between the beginning balance and the ending balance in the allowance account, assuming no recoveries were made of accounts previously written off.
The allowance account had a credit balance of $76,500 at the beginning of the year and a debit balance of $3,400 at the end of the year. That means a total of $79,900 ($76,500 + $3,400) of receivables were written off during the year.
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