Adventure Company uses the aging of accounts receivable method to estimate Bad D

Question

Adventure Company uses the aging of accounts receivable method to estimate Bad Debt Expense. The balance of each account receivable is aged on the basis of three categories as follows: (1) 1-30 days old, (2) 30-90 days old, and (3) more than 90 days old. Based on experience, management has estimated what portion of receivables of a specific age will not be paid as follows: (1) 2%, (2) 14%, and (3) 32%, respectively. At December 31, 2016, the unadjusted credit balance in the Allowance for Doubtful Accounts was $260. The total Accounts Receivable in each age category were: (1) 1-30 days old, $66,000, (2) 30-90 days old, $15,000, and (3) more than 90 days old, $5,000.

A. Calculate the estimate of uncollectible accounts at December 31, 2016

B. Prepare the appropriate adjusting entry dated December 31, 2016.

Journal Entry Question: Record the adjusting entry on December 31, 2016

Explanation / Answer

a.

b.

Days Account Receivable % of d. Debts Provision for Bad Debts 1-30 days 66000 2 1320 30-90 15000 14 2100 More than 90 5000 32 1600 Total 86000 5020 Provision for Doubtful Debts Particulars Amount Particulars Amount By Balance B/f             260 To Balance c/f 5020 BY Bad Debts Exp. 4760 5020 5020

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