Question

Exercise 7-14 (Algo) Calculate uncollectible accounts using the aging method; record adjustments [LO7-5, 7-6]

Zuo Software categorizes its accounts receivable into four age groups for purposes of estimating its allowance for uncollectible accounts.

1. Accounts not yet due = $255,000; estimated uncollectible = 20%.
2. Accounts 1–30 days past due = $31,900; estimated uncollectible = 23%.
3. Accounts 31–90 days past due = $25,500; estimated uncollectible = 26%
4. Accounts more than 90 days past due = $19,100; estimated uncollectible = 30%.

At 12/31/2021, before recording any adjustments, Zuo has a credit balance of $21,400 in its allowance for uncollectible accounts.

Required:
1. Estimate the appropriate 12/31/2021 balance for Zuo’s allowance for uncollectible accounts.
2. What journal entry should Zuo record to adjust its allowance for uncollectible accounts?
3. Calculate Zuo’s 12/31/2021 net accounts receivable balance.

Answer 1

1) Calculate estimate allowance for uncollectible accounts

Days	Amount	% Uncollectible	$ Uncollectible
Not yet due	255000	20%	51000
1-30 days	31900	23%	7337
31-90 days	25500	26%	6630
Over 90 days	19100	30%	5730
Total	331500		70697

Estimate allowance for doubtful accounts = $70697

2) Adjusting entry

No	General Journal	Debit	Credit
	Bad debt expense (70697-21400)	49297
	Allowance for doubtful account		49297

3) Net account receivable balance = 331500-70697 = $260803