Question

# At December 31, the Azuza Company had a balance of \$754,000 in its Accounts Receivable account...

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.

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

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