Question

Noell Co. sells Christmas angels. Noell determines that at the end of December, it has the following aging schedule of Accounts Receivable:

Customer	Total		Not Yet Due		Number of Days Past Due
			1–30	31–60	61–90	Over 90
DV Farmer	$5,000		$3,000	$2,000
JJ Joysen	3,000	1,000			2,000
NJ Bell	1,500			500		1,000
JC Net	2,000	2,000
	11,500	3,000	3,000	2,500	2,000	1,000
% uncollectible		1%	5%	10%	20%	50%
Total Estimated Uncollectible Amounts

(a) Calculate the total estimated bad debts based on the information presented in the table.

(b) Prepare the year-end adjusting journal entry to record bad debts using the aged uncollectible accounts receivable determined in (a). Assume the current balance in Allowance for Doubtful Accounts is a $650 debit.                    Dr.                   Cr.

(c) Assume that the company has a policy of providing for bad debts at the rate of 1% of sales, with Sales for 2008 being $55,000. Prepare the adjusting entry for bad debts under the percentage of sales basis.                                                            Dr.                   Cr.

Answer 1

SOLUTION

(A)

Amount ($)	11,500	3,000	3,000	2,500	2,000	1,000
% Uncollectible		1%	5%	10%	20%	50%
Total estimated Uncollectible amounts	1,330	30	150	250	400	500

(B)

Account titles and Explanation	Debit ($)	Credit ($)
Bad Debt Expense	1,980
Allowance for Doubtful Accounts		1,980
($1,330 + $650)

(C)

Account titles and Explanation	Debit ($)	Credit ($)
Bad Debt Expense	550
Allowance for Doubtful Accounts		550
($55,000 * 1%)