Question

PRACTICAL APPLIATION #5 A. The Kelley company has divided its accounts receivable into five age groups by preparing the following aging schedule: Total Not yet 1 - 30 31 - 60 61 - 90 Over 90 days past days past days past days past due due due due due 4,500 Eastern company4,500 Northern company 1.200 Western company 20.00 Southern company 800 National company 6,500 Other customers 35,000 - 300 500 1.500 - 3,500 16,000 500 - 3,000 11,000 4.800 1.200 2.000 50,000 25,500 14,500 6,000 1,500 2,500 On the basis of past experience and current economic conditions, the company has determined the percentage of expected credit losses in each age group as follows: • Not yet due: 1% • 1-30 days past due: 3% • 31 - 60 days past due: 10% • 61 - 90 days past due: 20% • Over 90 days past due: 50% At the end of the year 2018, the allowance for doubtful accounts account shows a credit balance of $2,000. Required: 1. Compute the total amount of estimated uncollectibles (the required balance in the allowance for doubtful accounts account) on the basis of above information. 2. Prepare an adjusting entry to recognize uncollectible accounts expense and adjust the balance in allowance for doubtful accounts account to the required amount. 3. Southern company (accounts receivable) did not make a payment on time and the amount of $500 was classified as uncollectible and written off on June 15, 2018, please record this journal entry. 4. Please estimate the uncollectible accounts using percentages of the total accounts receivable on December 31, 218. The rate = 3% of the total accounts receivable. Record this entry

Answer 1

1.

Particulars	Amount	%	Uncollectible amount
not yet due	$ 25,500	1	$                                     255
1-30 days due	$ 14,500	3	$                                     435
31-60 days	$     6,800	10	$                                     680
61-90 days	$     1,500	20	$                                     300
over 90 days	$     2,500	50	$                                 1,250
TOTAL			$                                 2,920

2.

	DEBIT	CREDIT
UNCOLLECTIBLES DEBTS	$   920
ALLOWANCE FOR UNCOLLECTIBE		$920
(2920-200)

AMOUNT REQUIRED = $2,920

AMOUNT ALREDAY IN ALLOWANCE ACCOUNT = $2000

ALLOWANCE REQUIRED NOW = 2920-2000 = $920

3.WRITE OFF ENTRY

ALLOWANCE FOR UNCOLLECTIBE	$   500
ACCOUNTS RECEIVABLE		$   500

4.

ALLOWANCE FOR UNCOLLECTIBE	$   500
INCOME( PROFIT)		$   500

PROVISION REQUIRED = $ 50,000 * 3% = $1,500

PROVISION ALREADY IN BOOKS = $2,000

PROVISION OF $ 500 TO BE REVERSED