A company uses the aging of accounts receivable method to estimate its bad debts

Question

A company uses the aging of accounts receivable method to estimate its bad debts expense. On December 31 of the current year an aging analysis of accounts receivable revealed the following:

Total

A. Calculate the amount of the Allowance for Doubtful Accounts that should be reported on the current year-end balance sheet. Use the partially completed template below to show your calculations.

      B. Calculate the amount of the Bad Debts Expense that should be reported on the current year's income statement, assuming that the Allowance for Doubtful Accounts had a credit balance of $2,300 on December 31 of the current year.

      C. Prepare the adjusting journal entry to record bad debts expense on December 31 of the current year.

Accounts
Receivable Account Age Estimated
Uncollectible $       80,000 1 - 30 days 0.5%            60,000 31 - 60 days 7.0%            40,000 61 - 90 days 10.0%            10,000 Over 90 days 60.0% $     190,000

Total

Explanation / Answer

A.

B. Bad debts expense = $14600 - $2300 = $12300

C. Adjusting Journal Entry:

Account Age Accounts Receivable Amount Estimated Percentage Uncollectible Estimated Amount Uncollectible 1 - 30 days $80,000 0.5% $400 31 - 60 days $60,000 7.0% $4,200 61 - 90 days $40,000 10.0% $4,000 Over 90 days $10,000 60.0% $6,000 Total estimated amount uncollectible $1,90,000 $14,600

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