Question

Brown cow dairy uses the aging approach to estimate Bad Debt expense. The balance of each account receivables is aged on the basis of three time periods as follows; 1) 1-30 days old, $12,000; 2) 31-90 days old, $5000; and 3) more than 90 days old, $3000. Experience has shown that for each age group, the average loss rate on the amount of the receivable due to uncollectibility is 1) 3%, 2) 15%, and 3) 30%, respectively. At Dec. 31, 2010 the allowance for doubtful debt accounts balance was $800 (credit) before the end-od-period adjusting entry is made. 1) Prepare a schedule to estimate an appropriate year-end balance for the allowance for doubtful accounts. 2) What amount should be recorded as Bad Debt Expense for the current year? 3) If the unadjusted balance in the Allowance for Doubtful Accounts was $600 debit balance, what would be the amount of Bad Debt expense in 2010?

Answer 1

(i) $2,010

(ii) $1,210

(iii) $2,610

Step-by-step explanation:

(1) Estimated year end Balances for Uncollectible Amounts:

= 1-30 days old + 31-90 days old + more than 90 days old

= (Amount × Estimated Uncollectibles) + (Amount × Estimated Uncollectibles) + (Amount × Estimated Uncollectibles)

= ($12,000 × 3%) + ($5,000 × 15%) + ($3,000 × 30%)

= $360 + $750 + $900

= $2,010

(2) Bad Debt Expense for the year :

= Estimated Uncollectible Amount - Existing Credit Balance in the Allowance Account

= $2,010 - $800

= $1,210

(3) If the existing balance is Debit Balance of $600.

Bad Debt Expense:

= $2,010 + 600

= $2,610.

Answer 2

The year-end balance for the allowance for doubtful accounts is $2,010.

Allowance for doubtful accounts

1. Year end balance
Estimated Uncollectible Amounts= 1-30 days + 31-90 days + more than 90 days old

Year-end balance = ($12,000 × 3%) + ($5,000 × 15%) + ($3,000 × 30%)

Year-end balance = $360 + $750 + $900

Year-end balance= $2,010

2. Bad Debt Expense

Bad Debt Expense = Estimated Uncollectible Amount - Existing Credit Balance in the Allowance Account

Bad Debt Expense = $2,010 - $800

Bad Debt Expense = $1,210

3. Bad Debt Expense:

Bad Debt Expense = $2,010 + 600

Bad Debt Expense = $2,610

Inconclusion the year-end balance for the allowance for doubtful accounts is $2,010.

Learn more about allowance for doubtful accounts here:allowance for doubtful accounts