Question

Aging Analysis of Accounts Receivable Cowen's, a large department store located in a metropolitan area, has been experiencing difficulty in estimating its bad debts. The company has decided to prepare an aging schedule for its outstanding accounts receivable and estimate bad debts by the due dates of its receivables. This analysis dis closes the following information: Age of Receivable Under 30 days 30-60 days 61-120 days 121-240 days 241-360 days Over 360 days Balance Estimated Percentage Uncollectible $193,000 114,000 73,000 41,000 25,000 19,000 $465,000 0.8% 2.0% 5.0% 20.0% 35.0% 60.0% Required: 1. Use the preceding analysis to compute the estimated amount of uncollectible receivables. 2. What is the net realizable value of Cowen's accounts receivable? 3. Prepare the journal entry to record Cowen's estimatedd uncollectibles, assuming the balance in Allowance for Doubtful Accounts prior to adjustment is a. 0 b. $3,000 (debit c. $2,800 (credit)

Answer 1

Answer 1. Estimated amount of uncollectible receivable is $35,824 computed as follows.

Age	Balance	Estimated % uncollectible	Est. amount Balance
under 30 days	$193,000	0.8%	$1,544
30-60 days	$114,000	2%	$2,280
61-120 days	$73,000	5%	$3,650
121-240 days	$41,000	20%	$8,200
241-360 days	$25,000	35	$8,750
over 360 days	$19,000	60%	$11,400
Total	$465,000		$35,824

2. The Net realizable Value of Account Receivable is $429,176.

Net realizable value AR = AR - Uncollectible Receivable

= $465,000 - $35,824 = $429,176

Answer 3.

A) When balance in Allowance for Doubtful account is 0.

Date	Account tittle	Debit	Credit
	Bad debt expense	$35,824
	Allowance for doubtful accounts		$35,824
	To record estimated bad debt

B) When balance in Allowance for Doubtful account is $3,000 debit.

Date	Account tittle	Debit	Credit
	Bad debt expense	$38,824
	Allowance for doubtful accounts		$38,824
	To record estimated bad debt

Note: Current Period Credit Balance in Allowance for Doubtful account - $35,824

Add: Prior Period Debit Balance in Allowance for Doubtful account - $3,000

Adjustment entry to be made in current period for doubtful account- $38,824

C) When balance in Allowance for Doubtful account is $2,800 Credit.

Date	Account tittle	Debit	Credit
	Bad debt expense	$33,024
	Allowance for doubtful accounts		$33,024
	To record estimated bad debt

Note: Current Period Credit Balance in Allowance for Doubtful account - $35,824

Less: Prior Period Debit Balance in Allowance for Doubtful account -  $2,800

Adjustment entry to be made in current period for doubtful account- $33,024