Chou Company uses the aging approach to estimate bad debt expense. The balance o
ID: 2631008 • Letter: C
Question
Chou Company uses the aging approach to estimate bad debt expense. The balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, $281,000, (2) up to 120 days past due, $56,000, and (3) more than 120 days past due, $25,000. Experience has shown that for each age group, the average loss rate on the amount of the receivables at year-end due to uncollectability is (1) 3.0 percent, (2) 10 percent, and (3) 31 percent, respectively. At December 31, 2015 (end of the current year), the Allowance for Doubtful Accounts balance is $500 (credit) before the end-of-period adjusting entry is made.
Prepare the appropriate bad debt expense adjusting journal entry for the year 2015. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
Show how the various accounts related to accounts receivable should be shown on the December 31, 2015, balance shee. (Amounts to be deducted should be indicated by a minus sign.
Chou Company uses the aging approach to estimate bad debt expense. The balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, $281,000, (2) up to 120 days past due, $56,000, and (3) more than 120 days past due, $25,000. Experience has shown that for each age group, the average loss rate on the amount of the receivables at year-end due to uncollectability is (1) 3.0 percent, (2) 10 percent, and (3) 31 percent, respectively. At December 31, 2015 (end of the current year), the Allowance for Doubtful Accounts balance is $500 (credit) before the end-of-period adjusting entry is made.
Explanation / Answer
281,000 x 0.035 = 9,835
56,000 x 0.10 = 5,600
25,000 x 0.30 = 7,500
Total = 22935 amount estimated to be uncollectible.
Total A/R = $345,000
Since the allowance account already has a $500 credit balance the adjustment would be for 22935 - 500 = 22435
Dr Bad Debt Expense 22435
Cr Allowance for Doubtful Accounts22435
The Allowance account now has a credit balance of22435, the same amount that is estimated to be uncollectible.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.