Question

During the year, Bears Inc. recorded credit sales of $620,000. Before adjustments at year-end, Bears has accounts receivable of $380,000, of which $51,000 is past due, and the allowance account had a credit balance of $2,600. Using the aging of receivables method, what would be the adjustment assuming Bears expects it will not collect 7% of the amount not yet past due and 20% of the amount past due?

Answer 1

Step-by-step explanation:

For computing the actual amount of expense, first, we have to compute the expected amount which is shown below:

= Not yet past due × given percentage + past due × given percentage

= $329,000 × 7% + $51,000 × 20%

= $23,030 + $10,200

= $33,230

And, the opening balance of allowance account is $2,600

The amount not yet past due is computed below:

= Accounts receivable - past due

= $380,000 - $51,000

= $329,000

So, the amount of expense

= Estimated amount - opening balance of allowance account

= $33,230 - $2,600

= $30,630

The adjustment entry is shown below:

Bad Debt Expense Dr $30,630

To Allowance for Uncollectible accounts 30,630

(Being the bad debt expense is adjusted)