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) note yet due, $295,000, (2) up to 120 days past due, $55,000, and (3) more than 120 days past due, $18,000. 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) 2.5 percent, (2) 11 percent, and (3) 30 percent, respectively. At December 31, 2018 (end of the current year), the Allowance for Doubtful Accounts balance is $100 (credit) before the end-of-period adjusting entry is made. 1. Prepare the appropriate bad debt expense adjusting entry for 2018. 2. Show how the various accounts related to accounts receivable should be show on the December 31, 2018 balance sheet.

Answer 1

working:

amount of uncollectibles estimated:

295,000*2.5%	7,375
55,000*11%	6,050
18,000*30%	5,400
total amount of uncollectibles	18,825
less: credit balance already present	(100)
amount to be expensed	18,725

a. appropriate entry:

dec 31 2018	bad debt expense a/c	18,725
	...........To allowance for doubtful accounts a/c		18,725

2. accounts receivable will be presented as below:

accounts receivable (295,000+55,000+18,000)	368,000
less:allowance for doubtful accounts (18,725+100)	(18,825)	349,175