Question

Required information Skip to question [The following information applies to the questions displayed below.] ABC Company prepared the following aging of receivables analysis at December 31. Days Past Due Total 0 1 to 30 31 to 60 61 to 90 Over 90 Accounts receivable $ 640,000 $ 410,000 $ 104,000 $ 50,000 $ 32,000 $ 44,000 Percent uncollectible 3 % 4 % 7 % 9 % 12 % a. Estimate the balance of the Allowance for Doubtful Accounts assuming the company uses 5% 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 $13,400 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 $2,400 debit. Estimate the balance of the Allowance for Doubtful Accounts assuming the company uses 5% of total accounts receivable to estimate uncollectibles, instead of the aging of receivables method.

Answer 1

A. $32,000

B. Dec 31

Dr Bad debts expense $18,600

Cr Allowance for doubtful accounts $18,600

C. Dec 31

Dr Bad debts expense $34,400

Cr Allowance for doubtful accounts $34,400

Step-by-step explanation:

a. Calculation to Estimate the balance of the Allowance for Doubtful Accounts assuming the company uses 5% of total accounts receivable to estimate uncollectibles, instead of the aging of receivables method

Accounts receivable

Not due $ 410,000

1 to 30 $ 104,000

31 to 60 $ 50,000

61 to 90 to$ 32,000

Over 90 $44,000

Total Accounts receivable $640,000

Estimate the balance of the Allowance for Doubtful Accounts=$640,000*5%

Estimate the balance of the Allowance for Doubtful Accounts=$32,000

Therefore the Estimated balance of the Allowance for Doubtful Accounts will be $32,000

b. Preparation of the adjusting entry to record Bad Debts Expense from part a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $13,400 credit.

Dec 31

Dr Bad debts expense $18,600

Cr Allowance for doubtful accounts $18,600

($32,000-$13,400)

(To record Bad Debts Expense)

c. Preparation ofn 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 $2,400 debit.

Dec 31

Dr Bad debts expense $34,400

Cr Allowance for doubtful accounts $34,400

($32,000+$2,400)

(To record bad debts expense )