Gary\'s Dairy uses the aging approach to estimate bad debt expense The balance o

Question

Gary's Dairy uses the aging approach to estimate bad debt expense The balance of each account receivable is aged on the basis of three time periods as follows (1) not yet due. S16.000. (2) up to 120 days past due. $5,500. and (3) more than 120 days past due. $2.500 Experience has shown that for each age group, the average loss rate on the amount of the receivables at year-end due to uncollectability is (1) 2 percent, (2) 14 percent, and (3) 35 percent, respectively At December 31. 2011 (end of the current year) the Allowance for Doubtful Accounts balance is $900 (credit) before the end-of-period adjusting entry is made.

Explanation / Answer

account

receivable

amount

expected

uncollectible amount

Age of account receivable

account

receivable

amount

%of not collection

expected

uncollectible amount

Not yet due 16000 2% 320 Up to 120 days 5500 14% 770 More than 120 days 2500 35% 875 Total 1965 Balance in allowance account 900 Bad debt expenses for current year 1065

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