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2. The chief accountant of Happy Trails, Inc. prepared the following agency schedule for the company’s...

2. The chief accountant of Happy Trails, Inc. prepared the following agency schedule for the company’s end-of-June accounts receivable to determine an allowance for doubtful accounts and bad debt expenses for June.

AR Status $ Outstanding Estimated % Uncollectible
Current 300,000 1
Overdue
Less than 1 month 25,000 1
Up to 2 months 12,000 5
Up to 3 months 7000 15
Up to 6 months 4,000 20
6 months and over 6,000 40
Total 354,000

(a) What is the June 30 allowance for doubtful accounts?

(b) Prepare the accounts receivable section of the June 30 balance sheet.

(c) Assume the following: (1) the May 31 allowance for doubtful accounts was $7,000 and (2) during June, $1,500 of accounts receivable was written off as uncollectible. What is the June bad debt expense?

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Answer #1

a) Calculate June 30 Allowance for doubtful accounts

AR status $ outstanding % Uncollectible Uncollectible amount
Current 300000 1% 3000
Overdue
Less than 1 Month 25000 1% 250
Upto 2 Month 12000 5% 600
Upto 3 Months 7000 15% 1050
Upto 6 Months 4000 20% 800
6 Months and over 6000 40% 2400
Total 354000 8100

a) June 30 Allowance for doubtful accounts = $8100

b) Balance sheet

Current assets
Account receivable 354000
Less: Allowance for doubtful accounts -8100 345900

Journal entry

Date account and explanation debit credit
June 30 Bad debt expense (8100-5500) 2600
Allowance for doubtful accounts 2600
(To record adjusting entry)
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