E5-44B (Learning Objective 4: Using the aging approach to estimate bad debts) At

Question

E5-44B (Learning Objective 4: Using the aging approach to estimate bad debts) At December 31, before any year-end adjustments, the accounts receivable balance of Digital Electronics Company is 150,000. The allowance for doubtful accounts has a 6,800 credit balance. Digital Electronics Company prepares the following aging schedule for accounts Age of Accounts 1-30 Days 31-60 Days 61-90 Days Over 90 Days Total Balance S150,000 Estimated uncollectible E60,000 0.6% 50,000 4.0% 30,000 7.0% 10,000 40.0% Requirements 1. Based on the aging of accounts receivable, is the unadjusted balance of the allowance account adequate? Too high? Too low? 2. Make the entry required by the aging schedule. Prepare a T-account for the allowance. 3. Show how Digital Electronics Company will report Accounts Receivable on its December 31 balance sheet.

Explanation / Answer

Total Balance = 158000 1-30 days 60000 * 0.6% 360 (estimated uncollectible: 0.6%) 31-60 days 50000 * 4% 2000 (estimated uncollectible: 4.0%) 61-90 days 30000 * 7% 2100 (estimated uncollectible: 7%) Over 90 days 10000 * 40% 4000 (estimated uncollectible: 40%) Total 8460 Ans. 1   The unadjusted balance of 6800 is too low. Ans. 2 Bad debts expense 1660 Allowance for doubtful accounts 1660 * 8460 - 6800 = 1660 Allowance for doubtful account Balance b/d 6800 Balance c/d 8460 Bad debts expense 1660 8460 8460 Ans. 3 Accounts receivable 150000 Less: Allowance for doubtful accounts -8460 Net Accounts Receivable 141540

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