Question

On December 31, Jarden Co.'s Allowance for Doubtful Accounts has an unadjusted credit balance of $14,500. Jarden prepares a schedule of its December 31 accounts receivable by age. 

 

Required 

1. Compute the required balance of the Allowance for Doubtful Accounts at December 31 using an aging of accounts receivable.

2. 2. Prepare the adjusting entry to record bad debts expense at December 31. 

3. 3. On June 30 of the next year, Jarden concludes that a customer's $4,750 receivable is uncollectible and the account is written off. Does this write-off directly affect Jarden's net income?

   
   

Answer 1

1.

Age	Accounts Receivable	Percent Uncollectible	Amount Uncollectible
Not yet due	830000	1.25%	10375
1 - 30 days	254000	2.00%	5080
31 - 60 days	86000	6.50%	5590
61 - 90 days	38000	32.75%	12445
Over 90 days	12000	68.00%	8160
Total			41650

Required balance of the Allowance for Doubtful Accounts at December 31: $41650

2.

Date	General Journal	Debit	Credit
December 31	Bad debts expense ($41650 - $14500)	27150
	Allowance for doubtful accounts		27150
	(To record bad debts expense)

3. The write off of the uncollectible receivable does not directly affect Jarden's net income since the journal entry to record the write off will debit the allowance for doubtful accounts and credit the accounts receivable by $4750. As no income statement account is affected, there will be no impact on the net income.