Question

Domino company ages its accounts receivable to estimate bad debts expense. Domino began year 2 with balances in accounts receivable and allowance for doubtful accounts of 44,970 and3530, respectively. During year 2, the company wrote off 2670 in uncollectible accounts. In preparation for the company's estimate of bad debts expense for year 2, Domino prepared the following aging schedule:

Number of days past due Receivables amount
Current73,000 1
0-30 27,400 5
31-607,060 10
61-90 3,620 25
Over 903,300 50

What amount will be reported as bad debts expense on the year 2 income statement?
1) $5,361
2) $4,501
3) $1,831
4) None of the above
5) $2,670

Answer 1

To calculate Domino company's bad debts expense, we apply percentages of uncollectability to the balances in the aging schedule of accounts receivable, obtaining a total of $5,361, which then needs adjustment based on the write-offs and beginning allowance.

Step-by-step explanation:

To estimate bad debts expense for the year 2 income statement using Domino company's aging schedule of accounts receivable, we need to apply the given percentages of uncollectability to the respective receivable balances based on how many days they are past due.

Here is an estimation based on the provided aging schedule:

• Current: $73,000 x 1% = $730
• 1-30 days: $27,400 x 5% = $1,370
• 31-60 days: $7,060 x 10% = $706
• 61-90 days: $3,620 x 25% = $905
• Over 90 days: $3,300 x 50% = $1,650

The total estimated bad debts expense would be the sum of these amounts: $730 + $1,370 + $706 + $905 + $1,650 = $5,361.

After accounting for write-offs and the existing allowance for doubtful accounts, the bad debts expense recorded on the income statement might differ. We would subtract the written off amount of $2,670 and the beginning allowance for doubtful accounts of $3,530 from the calculated total before recording the yearly expense.