Question

Lin’s Dairy uses the aging approach to estimate bad debt expense. The ending balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, $22,000; (2) up to 120 days past due, $6,500; and (3) more than 120 days past due, $2,800. Experience has shown that for each age group, the average loss rate on the amount of the receivables at year-end due to uncollectibility is (1) 3 percent, (2) 14 percent, and (3) 34 percent, respectively. At the end of the current year, the Allowance for Doubtful Accounts balance is $1,200 (credit) before the end-of-period adjusting entry is made.

Required:

What amount should be recorded as Bad Debt Expense for the current year? (Enter your answers as a whole percentage (i.e., 0.12 should be entered as 12).)

Aged Accounts Receivable Estimated Percentage Uncollectible Estimated Amount Uncollectible Not yet due Up to 120 days past due Over 120 days past due

Answer 1

Solution

Aged Accounts receivable		Estimated percentage Uncollectible	Estimated Amount Uncollectible
Not yet due	$   22,000.00	3%	$         660.00
Up to 120 days past due	$     6,500.00	14%	$         910.00
Over 120 days past due	$     2,800.00	34%	$         952.00
Estimated balance in allowance for doubtful accounts			$     2,522.00
Current balance in allowance for doubtful accounts			$     2,100.00
Bad debt expense for the year			$         422.00

Bad debts to be recorded = Balance required in allowance account- Current balance in allowance before adjustment.........(2522-2100=$422)