Question

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

Answer 1

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

C. Adjusting Journal Entry:

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