Question

Using an Aging Schedule to Account for Bad Debts Carter Company sells on credit wiith terms of n/30. For the $500,000 of accounts at the end of the year that are not overdue, there is a 90 % probability of collection. For the $200,000 of ac that are less than a month past due, Carter estimates the likelihood of collection going down to 70 %. The probability of collecting the $100,000 of accounts more than a month past due is estimated to be 25% Required: 1. Prepare an aging schedule to estimate the amount of uncollectible accounts. Carter Company Aging Schedule to Account for Bad Debts Category Estimated Amount Percent Uncollectible Amount Uncollectible 508,000 10 P Current 50,000 Past due Less than one month 200,000 60.000 30 100,000 75 % More than one month 75,000 s00,000 185,000 Totals

Answer 1

1st requirement is correct.

Requirement 2:

1. Activity: Operating

2. Accounts: Allowance for doubtful accounts Increase, Bad debt expense Increase

3. Statements: Both balance sheet and income statement

Revenue = Net income Balance sheet Assets Liabilities Allowance for doubtful accounts -165,000 Note: Bad debt expense = 185,000 - 20,000 = 165,000 Equity Retained earnings -165,000 Income statement Expenses Bad debt expense 165,000 -165,000