Question

Question 1 (21 score) Recrdng and Reporting Allowance for Doubtful Accounts Using the Percentage of Credit Sales and Aging of Accounts Receivable Methods Innovative Tech Inc. ITD us ses the percentage of credit sales method to estimate bad debts each November, ITI sold services on one percent of those sales would be uncollectible. I year-end, total Accounts Receivable is $89,000, aged as follows: (1) 1-30 $10,000; and (3) more than 90 days old, $4,000. month and then uses the aging method at year-end. During N account for $100,000 and estimated thath of At its December 3 days old, $75,000; (2) 31-90 days old, Experience has shown that for each age group, the average rate of u percent, (2) 20 is made, the Allowance for Doubtful Accounts has a $1,600 credit balance at Required: 1. Prepare the November adjusting entry for bad debts. percent, and (3) 40 percent, respectively. Before the end-of-year adjusting entry December 31. 2. Prepare a schedule to estimate an appropriate year-end balance for the Allowance for Doubtful Accounts. 3. Prepare the December 31 adjusting entry 4. Show how the various accounts related to accounts receivable should be shown on the December 31 balance sheet.

Answer 1

1.

Date	Accounts	Debit	Credit
Nov. 30	Bad debts expense (0.5% x $100000)	500
	Allowance for doubtful accounts		500
	(To record bad debts expense)

2.

Ageing	Accounts Receivable $	Uncollectible %	Uncollectible $
1-30 days	75000	10%	7500
31-90 days	10000	20%	2000
More than 90 days	4000	40%	1600
Total	89000		11100

3.

Date	Accounts	Debit	Credit
Dec. 31	Bad debts expense ($11100 - $1600)	9500
	Allowance for doubtful accounts		9500
	(To record bad debts expense)

4.

Innovative Tech Inc. (ITI)
Balance Sheet (Partial)
December 31
Current assets:
Accounts receivable	89000
Less: Allowance for doubtful accounts	-11100
Accounts receivable (net)	77900