Daley Company estimates uncollectible accounts using the
allowance method at December 31. It prepared the following aging of
receivables analysis.
| Days Past Due | |||||||||||||||||||||||
| Total | 0 | 1 to 30 | 31 to 60 | 61 to 90 | Over 90 | ||||||||||||||||||
| Accounts receivable | $ | 660,000 | $ | 414,000 | $ | 108,000 | $ | 54,000 | $ | 36,000 | $ | 48,000 | |||||||||||
| Percent uncollectible | 1 | % | 2 | % | 5 | % | 7 | % | 10 | % | |||||||||||||
a. Estimate the balance of the Allowance for
Doubtful Accounts assuming the company uses 6% of total accounts
receivable to estimate uncollectibles, instead of the aging of
receivables method.
b. Prepare the adjusting entry to record Bad Debts
Expense using the estimate from part a. Assume the
unadjusted balance in the Allowance for Doubtful Accounts is a
$13,800 credit.
c. Prepare the adjusting entry to record bad debts
expense using the estimate from part a. Assume the
unadjusted balance in the Allowance for Doubtful Accounts is a
$2,800 debit.
a) Estimate the balance of the allowance for doubtful accounts = 660000*6% = 39600
b) Estimated allowance for doubtful accounts = (4140+2160+2700+2520+4800) = 16320
Adjusting entry
| Date | account and explanation | debit | credit |
| Bad debt expense (16320-13800) | 2520 | ||
| Allowance for doubtful accounts | 2520 | ||
| (To record adjusting entry) |
c) Estimated allowance for doubtful accounts = (4140+2160+2700+2520+4800) = 16320
Adjusting entry
| Date | account and explanation | debit | credit |
| Bad debt expense (16320+2800) | 19120 | ||
| Allowance for doubtful accounts | 19120 | ||
| (To record adjusting entry) |
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