Question

# A company uses the aging of accounts receivable method to estimate its bad debts expense. On...

A company uses the aging of accounts receivable method to estimate its bad debts expense. On December 31 of the current year an aging analysis of accounts receivable revealed the following:

 Accounts Receivable Account Age Estimated Uncollectible \$       80,000 1 - 30 days 0.5% 60,000 31 - 60 days 7.0% 40,000 61 - 90 days 10.0% 10,000 Over 90 days 60.0% \$     190,000 Total

A. Calculate the amount of the Allowance for Doubtful Accounts that should be reported on the current year-end balance sheet. Use the partially completed template below to show your calculations.

B. Calculate the amount of the Bad Debts Expense that should be reported on the current year's income statement, assuming that the Allowance for Doubtful Accounts had a credit balance of \$2,300 on December 31 of the current year.

C. Prepare the adjusting journal entry to record bad debts expense on December 31 of the current year.

 A. Computation of Balance Required for Allowance for Doubtful Accounts: Account Age Accounts Receivable Amount Estimated Percentage Uncollectible Estimated Amount Uncollectible 1 - 30 days 31 - 60 days 61 - 90 days Over 90 days Total estimated amount uncollectible B. Current Year's Bad Debt Expense C. Adjusting Journal Entry: Debits Credits 31-Dec

A.

 Account Age Accounts Receivable Amount Estimated Percentage Uncollectible Estimated Amount Uncollectible 1 - 30 days \$80,000 0.5% \$400 31 - 60 days \$60,000 7.0% \$4,200 61 - 90 days \$40,000 10.0% \$4,000 Over 90 days \$10,000 60.0% \$6,000 Total estimated amount uncollectible \$1,90,000 \$14,600

B. Bad debts expense = \$14600 - \$2300 = \$12300

 Debits Credits 31-Dec Bad debts expense 12300 Allowance for doubtful accounts 12300 (To record bad debts expense)

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