Credit Losses Based on Accounts Receivable At December 31, Rinehart Company had

Question

Credit Losses Based on Accounts Receivable At December 31, Rinehart Company had a balance of $311,800 in its Accounts Receivable account and a credit balance of $2,800 in the Allowance for Doubtful Accounts account. The accounts receivable T-account consisted of $317,600 in debit balances and $5,800 in credit balances. The company aged its accounts as follows:

In the past, the company has experienced credit losses as follows: 2% of current balances, 6% of balances 0-60 days past due, 15% of balances 61-180 days past due, and 30% of balances over six months past due. The company bases its allowance for doubtful accounts on an aging analysis of accounts receivable.

Required
a.Prepare the adjusting entry to record the allowance for doubtful accounts for the year.
b. Show how Accounts Receivable (including the credit balances) and the Allowance for Doubtful Accounts would appear on the December 31 balance sheet.

a.

b.

Current $264,000 0-60 days past due 30,000 61-180 days past due 13,200 Over 180 days past due 10,400 $317,600

Explanation / Answer

Accounts receivable % uncollectible Uncollectible amount Current balance 264000 2% 5280 0-60 days past due 30000 6% 1800 61-180 days past dues 13200 15% 1980 Over 180 days past dues 10400 30% 3120 Estimated balance of allowance for uncollectible 12180 a) Estimated balance of allowance for uncollectible 12180 Less Beginnning uncollectible balance -2800 Bad debt expense 9380 Bad debt expense 9380             Allowance for doubtful accounts 9380 b) Current assets Accounts receivable 311800 Allowance for doubtful accounts 9380 Net realizable value 302420 Current liabilities Customers overpayments 5800

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