Temper Company has credit sales of $4.10 million for year 2013. Temper estimates

Question

Temper Company has credit sales of $4.10 million for year 2013. Temper estimates that 1.40% of the credit sales will not be collected. On December 31, 2013, the company's Allowance for Doubtful Accounts has an unadjusted credit balance of $2,232. Temper prepares a schedule of its December 31, 2013, accounts receivable by age. Based on past experience, it estimates the percent of receivables in each age category that will become uncollectible. This information is summarized here:

December 31, 2013              Age of Accounts                  Expected Percent
Accounts Receivable                Receivable                            Uncollectible
-----------------------------------------------------------------------------------------------------------------------
$630,000             Not yet due                                  1.55%
258,000     1 to 30 days past due              2.30
50,600             31 to 60 days past due              6.80
25,800            61 to 90 days past due              32.25
5,060            Over 90 days past due                66.50

Assuming the company uses the aging of Accounts Receivable method, what is the amount that Temper will enter as the Bad Debt Expense in the December 31 adjusting journal entry?

Explanation / Answer

The amount that Comapny T should enter as Bad Debt Expese in the December 31 adjusting entry should be compted as follows:

$630,000 x 1.55% = $9765

$258,000 x 2.30% = 5934

$50,600 x 6.80% = 3440.80

$25,800 x 32.25% = 8320.50

$5,060 x 66.50% = 3364.90

Total estimated uncollectible = $9765 + $5934 + $3440.80 + $8320.50 + $3364.90 = $30,825.20

Credit balance in Allowance for Doubtful Accounts = $2,232

Therefore,

Bad debt expense = $30,825.20 - $2,232 = $28,593.20

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