Question

A company had $700,000 of net sales in 2017, all on credit. Their AR balance as of 12/31/17 was $225,000. During the year, the company wrote off $7,100 of AR. The Balance in allowance for doubtful accounts at 1/1/17 was $8,500. The company estimates bad debts as 1.1% of credit sales. Determine the amount of the adjustment. Show your work. (Part 2) Assume instead that the company uses the aging method to project uncollectible accounts. The company has $45,000 in current (1% is estimated to be uncollectible), $50,000 in 1-30 days past due (5% uncollectible), $30,000 in 31-60 days past due (8% uncollectible), $45,000 in 61-90 dyas past due (23% uncollectible) $55,000 in 90 days uncollectible (37% uncollectible). What is the adjustment that will need to be made to the allowance account at the end of the year ?

Answer 1

1. Amount of adjustment = $ 700,000 x 1.1 % = $ 7,700.

	Debit	Credit
	$	$
Bad Debt Expense	7,700
Allowance for Doubtful Accounts		7,700

Allowance for Doubtful Accounts:

Accounts Receivable	7,100	Balance, 1/1/17	8,500
		Bad Debt Expense	7,700
		Balance, 12/31/17	9,100

2.

Age of Receivable	Amount	% Uncollectible	Amount Uncollectible
Current	$ 45,000	1 %	$ 450
1 - 30 days	50,000	5 %	2,500
31-60 days	30,000	8%	2,400
61 -90 days	45,000	23 %	10,350
Over 90 days	55,000	37 %	20,350
	$ 225,000		$ 36,050

Allowance for Doubtful Accounts:

Accounts Receivable	7,100	Balance, 1/1/2017	8,500
		Bad Debt Expense ( balancing amount)	34,650
		Balance, 12/31/2017	36,050

Adjusting entry:

Account Titles	Debit	Credit
	$	$
Bad Debt Expense	34,650
Allowance for Doubtful Accounts		34,650