Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 47

Interpreting Disclosure off Allowance for Doubtful Accounts
Sonic Corp. runs the largest chain of drive-in restaurants in the United States. In its 2010 10-K, Sonic reported the following changes in the Allowance for Doubtful Accounts (in thousands):

Required:
1. Create a T-account for the Allowance for Doubtful Accounts and enter into it the amounts from the above schedule. Then write the T-account in equation format to prove that the above items account for the changes in the account.
TIP: The allowance increases when estimates are charged to Bad Debt Expense and when recoveries are resorted. The allowance decreases when accounts are written off.
2. Record summary journal entries related to ( a ) estimating bad debt expense, and ( b ) write-offs of specific balances during the year.
TIP: Use the generic account name "Receivables" to refer to the combined accounts receivable and notes receivable.
3. If Sonic had written off an additional $20,000 of accounts receivable during the period, how would Net Receivables have been affected How would Net Income have been affected