Question

At December 31, the Azuza Company had a balance of $754,000 in its Accounts Receivable account and a credit balance of $9,000 in the Allowance for Doubtful Accounts account. The company aged its accounts as follows:

Current	$608,000
0–60 days past due	88,000
61–180 days past due	40,000
Over 180 days past due	18,000
	$754,000

In the past, the company has experienced credit losses as follows: one percent of current balances, five percent of balances 0–60 days past due, 20 percent of balances 61–180 days past due, and 40 percent of balances over six months past due. The company bases its allowance for doubtful accounts on an aging analysis of accounts receivable.

Required
a. Prepare the adjusting entry to record the allowance for doubtful accounts for the year.

b. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear on the December 31 balance sheet.

a.

General Journal
Date	Description	Debit	Credit
Dec.31	Bad Debts ExpenseAllowance for Doubtful AccountsAccounts Receivable
	Bad Debts ExpenseAllowance for Doubtful AccountsAccounts Receivable
	To record allowance for credit losses.

b. Do not use negative signs with your answers.

	Current Assets:
	Accounts ReceivableLess: Allowance for Doubtful Accounts
	Accounts ReceivableLess: Allowance for Doubtful Accounts

Answer 1

Calculation as follows:

Current Due	608000	1%	6080
0 - 60	88000	5%	4400
61 - 180	40000	20%	8000
More than 180	18000	40%	7200
	754000		25680

Estimated Amount = 25680

Allowance account has credit balance of 9000

So recorded amount will be 25680 - 9000 = 16680

1

Entry Will be

Date	Accounts and Explanation	Debit	Credit
31-Dec	Bad Debt Expense A/c Dr	16680
	To Allowance on Doubtful A/c		16680

2

Current Assets
Accounts Receivable	754000
Less : Allowance on Doubtful Accounts	25680	728320