Question

Twilight Company uses the aging of accounts receivable method to estimate Bad Debt Expense. The balance of each account receivable is aged on the basis of three categories as follows: (1) 1-30 days old, (2) 31-90 days old, and (3) more than 90 days old. Based on experience, management has estimated what portion of receivables of a specific age will not be paid as follows: (1) 2%, (2) 16%, and (3) 33%, respectively.

At December 31, 2019, the unadjusted credit balance in the Allowance for Doubtful Accounts was $130. The total Accounts Receivable in each age category were: (1) 1-30 days old, $63,000, (2) 31-90 days old, $19,000, and (3) more than 90 days old, $5,000.

Required:

1. Calculate the estimate of uncollectible accounts at December 31, 2019.
2. Prepare the appropriate adjusting entry dated December 31, 2019.

Answer 1

a.

Days	Account Receivable	% of d. Debts	Provision for Bad Debts
1-30 days	63000	2	1260
30-90	19000	16	3040
More than 90	5000	33	1650
Total	87000		5,950
Provision for Doubtful Debts
Particulars	Amount	Particulars	Amount
		By Balance B/f	130
To Balance c/f	5,950	BY Bad Debts Exp.	5,820
	5,950		5,950

b.

Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt
	Bad Debts Exp.                                          Dr.	5,820
	To Allowance for Doubtful Debts		,5,820
	(To record estimate of uncollectible accounts)