Question

Casilda Company uses the aging approach to estimate bad debt expense. The ending balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, $50,000; (2) up to 180 days past due, $14,000; and (3) more than 180 days past due, $4,000. Experience has shown that for each age group, the average loss rate on the amount of the receivables at year-end due to uncollectibility is (1) 3 percent, (2) 12 percent, and (3) 30 percent, respectively. At December 31, the end of the current year, the Allowance for Doubtful Accounts balance is $200 (credit) before the end-of-period adjusting entry is made.

1. Prepare the appropriate bad debt expense adjusting entry for the current year.

2. Show how the various accounts related to accounts receivable should be shown on the December 31, current year, balance sheet.

Answer 1

Requirement 1:

Date	Account title and explanation	Debit	Credit
Dec 31	Bad debt expense	$4,180
	Allowance for doubtful accounts		$4,180
	[To record bad debt expense]

Requirement 2:

Casilda Company
Balance sheet
At December 31, Current year
Current assets:
Accounts receivable	$68,000
(Less): Allowance for doubtful accounts	($4,380)
Net realizable value	$63,620

Calculations:

Accounts receivable	Amount	% of uncollectibles	Total uncollectibles
Not yet due	$50,000	3%	$1,500
Upto 180 days past due	$14,000	12%	$1,680
More than 180 days	$4,000	30%	$1,200
Total	$68,000		$4,380

.

Allowance for doubtful accounts after adjustments	$4,380
Allowance for doubtful accounts prior to adjustments	($200)
Bad debt expense	$4,180