Question

Broadway Limited had an $800 credit balance in Allowance for Doubtful Accounts at December 31, 2018, before the current year's provision for uncollectible accounts. An aging of the accounts receivable revealed the following:

                                                                                                         Estimated Percentage

                                                                                                                Uncollectible

       Current Accounts.......................................     $150,000                       1%

       1-30 days past due.....................................         15,000                       3%

       31-60 days past due...................................           8,000                       6%

       61-90 days past due...................................           5,000                     12%

       Over 90 days past due................................           6,000                     30%

       Total Accounts Receivable........................     $184,000

Instructions

(a)   Prepare the adjusting entry at December 31, 2018, to recognize bad debts expense.

(b) Assume the same facts as above except that the Allowance for Doubtful Accounts account had an $800 debit balance before the current year's provision for uncollectible accounts. Prepare the adjusting entry for the current year's bad debts.

Answer 1

Calculate balance of uncollectible amount :

	Amount	Estimated Percentage uncollectible	Estimated uncollectible amount
Current Accounts	150000	1%	1500
1-30 days past due	15000	3%	450
31-60 days past due	8000	6%	480
61-90 days past due	5000	12%	600
Over 90 days past due	6000	30%	1800
Total	184000		4830

(a)   Prepare the adjusting entry at December 31, 2018, to recognize bad debts expense.

Date	accounts & explanation	debit	credit
	Bad debt expense (4830-800)	4030
	Allowance for doubtful account		4030
	(To record adjusting entry)

(b) Prepare the adjusting entry for the current year's bad debts.

Date	accounts & explanation	debit	credit
	Bad debt expense (4830+800)	5630
	Allowance for doubtful account		5630
	(To record adjusting entry)