Question

can anyone help me to solve p8.4

total estimated bad debts will be €31.600. P8.4 (LO 21 Writing Ho Publishers, uses the allowance method to estimate un collectible accounts re- ceivable. The company produced the following aging of the accounts receivable at year-end (in thousands), Journalistrations related to be debts. Worksheet Total 200,000 Number of Days Outstanding 3 1-60 61-90 91-120 Over 120 46,000 39,000 23,000 15.000 4% 5% 8% 20% 0-30 77.000 1% Accounts receivable % uncollectible Estimated bad debts 6 a. Totest bad debts 19,400 Instructions a. Calculate the total estimated bad debts based on the above information. b. Prepare the year-end adjusting journal entry to record the bad debts using the aged uncollectible accounts receivable determined in (a). Assume the current balance in Allowance for Doubtful Accounts is a V8,000 debit c. Of the above accounts, V5,000 is determined to be specifically uncollectible. Prepare the journal entry to write off the uncollectible account. d. The company collects V5.000 subsequently on a specific account that had previously been deter mined to be uncollectible in (c). Prepare the journal entry(ies) necessary to restore the account and record the cash collection. Comment on how your answers to (a)-(d) would change if Housed 4% of total accounts receivable rather than aging the accounts receivable. What are the advantages to the company of aging the accounts receivable rather than applying a percentage to total accounts receivable? ELE naman W

Answer 1

a. Total estimated bad debts: $9400

		Number of Days Outstanding
	Total	0-30	31-60	61-90	91-120	Over 120
Accounts receivable	200000	77000	46000	39000	23000	15000
% uncollectible		1%	4%	5%	8%	20%
Estimated bad debts	9400	770	1840	1950	1840	3000

b.	Account Titles and Explanation	Debit	Credit
	Bad debts expense ($9400 + $8000)	17400
	Allowance for doubtful accounts		17400
	(To record the bad debts expense)
c.	Account Titles and Explanation	Debit	Credit
	Allowance for doubtful accounts	5000
	Accounts receivable		5000
	(To record write-off of uncollectible account)
d.	Account Titles and Explanation	Debit	Credit
	Accounts receivable	5000
	Allowance for doubtful accounts		5000
	(To record restoration of account receivable)
	Cash	5000
	Accounts receivable		5000
	(To record cash collected on account)

e. If Ho used 4% of accounts receivable for estimating the bad debts then the total estimated bad debts under (a) would be 4% x $200000 = $8000 and the bad debts expense for the year under (b) would be $8000 + $8000 = $16000. There would be no change in (c) and (d).

Aging the accounts receivable rather than applying a percentage to the total accounts receivable is a more refined approach to estimating the bad debts expense since it takes into consideration the number of days the receivable is outstanding and accordingly estimates the bad debt. As receivables remain outstanding for longer, the chances of collection of the same diminish and hence estimating the bad debt based on aging of accounts receivable is likely to provide a more accurate estimate.