Question

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

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.

(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