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 = $333,000; estimated uncollectible = 10%.
2. Accounts 1–30 days past due = $41,600; estimated uncollectible = 14%.
3. Accounts 31–90 days past due = $33,300; estimated uncollectible = 17%
4. Accounts more than 90 days past due = $25,000; estimated uncollectible = 21%.

At 12/31/2021, before recording any adjustments, Zuo has a credit balance of $25,500 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)-The appropriate 12/31/2021 balance for Zuo’s allowance for uncollectible accounts

Age of Accounts Receivables	Balance ($)	Percentage of Uncollectible	Total Estimated Uncollectible ($) [Balance x Percentage of Uncollectible]
Accounts not yet due	3,33,000	10.00%	33,300
Accounts 1–30 days past due	41,600	14.00%	5,824
Accounts 31–90 days past due	33,300	17.00%	5,661
Accounts more than 90 days past due	25,000	21.00%	5,250
TOTAL	4,32,900		50,035

“Hence, the appropriate 12/31/2021 balance for Zuo’s allowance for uncollectible accounts will be $50,035”

(2)-The journal entry for adjusting the allowance for uncollectible accounts

Date	General Journal	Debit ($)	Credit ($)
12/31/2021	Bad Debt Expense A/c	24,535
	To Allowance for uncollectible accounts A/c		24,535
	[The adjusting journal entry to record the Allowance for Uncollectible Accounts]

The amount of Bad Debt Expense to be recorded = Total uncollectibles – Credit balance in Allowance for Doubtful Accounts

= $50,035 - $25,500

= $24,535

(3)-Zuo’s 12/31/2021 net accounts receivable balance.

Zuo’s 12/31/2021 net accounts receivable balance = Total Accounts receivables - Allowance for uncollectible account

= $432,900 - $50,035

= $382,865