Question

Exercise 7-8 Percent of receivables method LO P3 

Daley Company estimates uncollectible accounts using the allowance method at December 31. It prepared the following aging of receivables analysis 

		Days Past Due
	Total	0	1 to 30	31 to 60	61 to 90	Over 90
Accounts receivable	$620,000	$406,000	$100,000	$46,000	$28,000	$40,000
Percent uncollectible		2%	3%	6%	8%	11%

a. Estimate the balance of the Allowance for Doubtful Accounts assuming the company uses 4% of total accounts receivable to estimate uncollectibles, instead of the aging of receivables method. 

b. Prepare the adjusting entry to record Bad Debts Expense using the estimate from part a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $13,000 credit. 

c. Prepare the adjusting entry to record bad debts expense using the estimate from part a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $2.000 debit. 

Answer 1

a) Schedule

	0	1 to 30	31 to 60	61 to 90	Over 90	Total
Account receivable	406000	100000	46000	28000	40000	620000
% Uncollectible	2%	3%	6%	8%	11%
$ Uncollectible	8120	3000	2760	2240	4400	20520

b) Adjusting entry

date	account and explanation	Debit	Credit
Dec 31	bad debt expense (20520-3800)	16720
	Allowance for doubtful accounts		16720

c) Adjusting entry

date	account and explanation	Debit	Credit
Dec 31	bad debt expense (20520+300)	20820
	Allowance for doubtful accounts		20820