Requirement 1:
Percent | Estimated uncollectible | ||||
Age Class | Balance | x | Uncollectible | = | Accounts amount |
Not past due | $600,000 | x | 0.75% | = | $4,500 |
1-30 | $66,000 | x | 4% | = | $2,640 |
31-60 | $30,000 | x | 6% | = | $1,800 |
61-90 | $21,600 | x | 18% | = | $3,888 |
91-180 | $15,600 | x | 41% | = | $6,396 |
Over 180 | $11,400 | x | 75% | = | $8,550 |
Total | $744,600 | $27,774 |
As on Dec 31 allowance for doubtful account balance should be $27,774
Requirement 2:
a.Net income of second year under % of sale method:
Net income of second year under direct write off | $39,600 |
Add: Direct write off | $6,000 |
(less): Bad debt expense ($330,000 x 1.5%) | ($4,950) |
Net income of second year under % of sale method | $40,650 |
b. Allowance for doubtful account's balance at the end of the second year under % of sales method:
Allowance for doubtful account is $110 Debit balance
Calculations:
First year | Second year | |
Sales | $330,000 | $396,000 |
Allowance for doubtful accounts | ||
Beginning balance | $0 | ($50) |
Bad debt expense (Sales x 1.5%) | $4,950 | $5,940 |
(Less): Write off | ($5,000) | ($6,000) |
Ending balance | ($50) | ($110) |
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