A company had $700,000 of net sales in 2017, all on credit. Their AR balance as

Question

A company had $700,000 of net sales in 2017, all on credit. Their AR balance as of 12/31/17 was $225,000. During the year, the company wrote off $7,100 of AR. The Balance in allowance for doubtful accounts at 1/1/17 was $8,500. The company estimates bad debts as 1.1% of credit sales. Determine the amount of the adjustment. Show your work. (Part 2) Assume instead that the company uses the aging method to project uncollectible accounts. The company has $45,000 in current (1% is estimated to be uncollectible), $50,000 in 1-30 days past due (5% uncollectible), $30,000 in 31-60 days past due (8% uncollectible), $45,000 in 61-90 dyas past due (23% uncollectible) $55,000 in 90 days uncollectible (37% uncollectible). What is the adjustment that will need to be made to the allowance account at the end of the year ?

Explanation / Answer

1. Amount of adjustment = $ 700,000 x 1.1 % = $ 7,700.

Allowance for Doubtful Accounts:

2.

Allowance for Doubtful Accounts:

Adjusting entry:

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