Adventure Company uses the aging of accounts receivable method to estimate Bad D
ID: 2487699 • Letter: A
Question
Adventure Company uses the aging of accounts receivable method to estimate Bad Debt Expense. The balance of each account receivable is aged on the basis of three categories as follows: (1) 1-30 days old, (2) 30-90 days old, and (3) more than 90 days old. Based on experience, management has estimated what portion of receivables of a specific age will not be paid as follows: (1) 1%, (2) 13%, and (3) 39%, respectively. At December 31, 2016, the unadjusted credit balance in the Allowance for Doubtful Accounts was $220. The total Accounts Receivable in each age category were: (1) 1-30 days old, $63,000, (2) 30-90 days old, $14,000, and (3) more than 90 days old, $6,000.
Calculate the estimate of uncollectible accounts at December 31, 2016.
Prepare the appropriate adjusting entry dated December 31, 2016.
a.Calculate the estimate of uncollectible accounts at December 31, 2016.
b.Prepare the appropriate adjusting entry dated December 31, 2016.
Explanation / Answer
Estimated uncollectible accounts
Days
amount
%
Estimated amount
1-30
63,000
1%
630
30-90
14,000
13%
1,820
More than 90
6,000
39%
2,340
total
4,790
Adjusting entry
4,790 – 220 = 4,570 adjustment required
Bad debts expense
4,570
To Allowance for doubtful accounts
4,570
Days
amount
%
Estimated amount
1-30
63,000
1%
630
30-90
14,000
13%
1,820
More than 90
6,000
39%
2,340
total
4,790
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