Question

Brown Cow Dairy uses the aging approach to estimate Bad Debt Expense. The balance of each account receivable is aged on the basis of three time periods as follows: (1) 1 to 30 days old, $12,000; (2) 31 to 90 days old, $5,000; and (3) more than 90 days old, $3,000. Experience has shown that for each age group, the average loss rate on the amount of the receivable due to uncollectibility is (1) 3 percent, (2) 15 percent, and (3) 30 percent, respectively. At December 31, 2017 (end of the current year), the Allowance for Doubtful Accounts balance was $800 (credit) before the end-of-period adjusting entry is made. Required: 1. Prepare a schedule to estimate an appropriate year-end balance for the Allowance for Doubtful Accounts. Estimated Amount Uncollectible Aging of Accounts Receivable 1-30 days 31-90 days More than 90 days Estimated balance in allowance for doubtful accounts 2. What amount should be recorded as Bad Debt Expense for the current year? Bad debt expense

Answer 1

1) Schedule

Aging of account receivable	Estimated account uncollectible
1-30 days	12000*3%= 360
31-90 days	5000*15% = 750
Over 90 days	3000*30% = 900
Estimated balance in allowance for doubtful accounts	2010

b) Bad debt expense = 2010-800 = 1210

c) Bad debt expense = 2010+600 = 2610