Question

The manager asks you to assist her with the data analytics on bad debts expense at year-end. To do this, you access the following Tableau Dashboard for your company. Makeup of Current Assets 1,220,000 1,708,000 732,000 476,000 Cash Accounts Receivable Inventory Supplies Value ($) Accounts Receivable by Age Over 90 days past due 12,000 61-90 days past due 38,000 31-60 days past due 86,000 1-30 days past due 254,000 1.30 days past due Not yet due Not yet due 830,000 $200,000 $600,000 $800,000 $400,000 Accounts Receivable ($) Makeup of Total Sales Percent Uncollectible by Age 68% Cash Sales 2,250,000 7,150,000 Estimated Percent Uncollectible 33% Credit Sales 7% 10% 0% 2% 3% Percent Uncollectible by Accounts Credit Sales 1% Accounts Receivable 5% Not yet due 1-30 days past due 31-60 days past due 61-90 days Over 90 days past due past due * + ableau 1. Estimate the balance of the Allowance for Doubtful Accounts using aging of accounts receivable. 2. Make the adjusting entry to record Bad Debts Expense assuming the unadjusted balance in the Allowance for Doubtful Accounts is a $5,000 credit and use of the aging of accounts receivables method. 3. Make the adjusting entry to record Bad Debts Expense assuming the unadjusted balance in the Allowance for Doubtful Accounts is an $8,000 debit and use of the aging of accounts receivables method. 4. Based on further analysis, assume we find that the percentages in the graphic "Percent Uncollectible by Age" are too high. When alerting the manager, she responds that this is intentional. What are the income statement impacts from the overstated percentages?

Answer 1

1.

		Uncollectible
	Accounts Receivable	%	Amount
Not yet due	$            830,000	2%	$            16,600
0-30 days	$            254,000	3%	$              7,620
31-60 days	$              86,000	7%	$              6,020
61-90 days	$              38,000	33%	$            12,540
Over 90 days	$              12,000	68%	$              8,160
Estimated balance of allowance for uncollectibles			$            50,940

2.

Account Titles	Debit	Credit
Bad Debt Expense	$              45,940		=50940-5000
Allowance for Uncollectible Accounts		$              45,940

3.

Account Titles	Debit	Credit
Bad Debt Expense	$ 58,940		=50940+8000
Allowance for Uncollectible Accounts		$              58,940

4.
With overstated percentages, there will be high bad debt expense which will lower the net income