Question

Chou Company 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, $281,000; (2) up to 120 days past due, $59,000; and (3) more than 120 days past due, $27,000. 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) 2.5 percent, (2) 12 percent, and (3) 31 percent, respectively. At December 31, the end of the current year, the Allowance for Doubtful Accounts balance is $400 (credit) before the end-of-period adjusting entry is made.

Required:

1. Prepare the appropriate bad debt expense adjusting entry for the current year.
2. Show how the various accounts related to accounts receivable should be shown on the December 31, current year, balance sheet.

Journal entry worksheet Record the adjusting journal entry for bad debt expense. Note: Enter debits before credits. Date General Journal Debit Credit December 31 Record entry Clear entry View general journal

Answer 1

Calculation of Estimated amount to be uncollectible

	Accounts receivable		Amount to be uncollected
Not yet due	$281000	2.5%	(281000*2.5%)= $7025
Up to 120 days past due	59000	12%	(59000*12%)= 7080
More than 120 days past due	27000	31%	(27000*31%)= 8370
Total	$367000		$22475

1)

Date	General Journal	Debit	Credit
December 31	Bad debt expense (22475-400)	$22075
	Allowance for doubtful accounts		$22075
	(To record adjusting entry for bad debt expense)

2)

CHOU COMPANY
Partial Balance Sheet
As of December 31
Accounts receivable	$367000
Allowance for doubtful accounts	-22475
Accounts receivable, net of allowance for doubtful accounts		$344525

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