King\'s Company estimates uncollectible accounts using the allowance method at D

Question

King's Company estimates uncollectible accounts using the allowance method at December 31 It prepared the following aging of receivables analysis. Total Not Late 1-30 Days 31-60 Late Over 60 Days Late Days Late Accounts $500,000 325,000 75,00060,000 40,000 Receivable 5% 125% 1% 10% Uncollectible Credit Sales for the Year: S1,500,500 Prepare the necessary journal entries to record each of the following events: Record the Entry to record Bad Debts Expense at the end of the accounting period using the aging of accounts receivable method outlined above. The ending balance in Allowance for Doubtful Accounts is a debit balance of S100. a. Debits Credits 23,100 Date Account Titles and Explanations 12/31 Bad Debt Expense Allowance for Doubtful Accounts 23.100 (3250+3750+6000+10,000)+ 100 deb bal b. Uncollectible Accounts are estimated to be 1-5% of accounts receivable. There is a credit balance of S1,500 in Allowance for Doubtful Accounts. Debits Credits 6000 Date Account Titles and Explanations 50 12/31 Bad Debt Expense 6000 Allowance for Doubtful Accounts (500,000*.015)-1500 cred bal Uncollectible Accounts are estimated to be 0.5% ofcredit sales. There is no balance in the Allowance for Doubtful Accounts Account. c Debits Credits 7502.50 Date Account Titles and Explanations 12/31 Bad Debt Expense 7502.50 Allowance for Doubtful Accounts (1.500,500*.005)

Explanation / Answer

In situation b, Bad debts expense are caluculated as a percentage of accounts receivable. It is estimated that 1.5% of accounts receivable balance as on Decmeber 31 will be uncollectible which amounts to $7500(500000*1.5%) The allowance for uncollectible account has already a balance of $1500 which means only $6000 (7500-1500) more is to be transferred to allowance account. So the bad debts expense for the year will be only $6000

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