Question

Adventure Company uses the aging of accounts receivable method to estimate Bad Debt Expense. The balance of each account receivable is aged on the basis of three categories as follows: (1) 1-30 days old, (2) 30-90 days old, and (3) more than 90 days old. Based on experience, management has estimated what portion of receivables of a specific age will not be paid as follows: (1) 3%, (2) 14%, and (3) 34%, respectively. At December 31, 2016, the unadjusted credit balance in the Allowance for Doubtful Accounts was $150. The total Accounts Receivable in each age category were: (1) 1-30 days old, $56,000, (2) 30-90 days old, $15,000, and (3) more than 90 days old, $6,000.

Required:

a.

Calculate the estimate of uncollectible accounts at December 31, 2016.

b.	Prepare the appropriate adjusting entry dated December 31, 2016. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Answer 1

Requirement (a) - Estimate of uncollectible accounts at December 31, 2016

Age of Accounts Receivables	Accounts Receivables Balance	Percentage of Uncollectible	Total Estimated Uncollectible
1-30 Days Old	$56,000	3%	$1,680
30-90 Days Old	$15,000	14%	$2,100
More than 90 Days old	$6,000	34%	$2,040
			$5,820

"Estimate of uncollectible accounts at December 31, 2016 = $5,820"

Requirement (b) - Appropriate adjusting entry dated December 31, 2016

Date	Accounts Tittles and Explanations	Debit ($)	Credit ($)
December 31, 2016	Bad Debt Expense A/c	5,670
	To Allowance for Doubtful Accounts		5,670

Bad Debt Expense

= Total Estimated Uncollectibles – Credit balance in Allowance for Doubtful Accounts

= $5,820 – 150

= $5,670