Question

Bonus question (3 pts), dve 11/4 at the start of class NAME OF COSING AND REPORTING ALLOWANCE FOR DOUBTFUL ACCOUNTS USING THE PERCENTAGE CREDIT SALES AND AGING OF ACCOUNTS RECEIVABLE METHODS Innovative ITT solders ve Tech Ine. (ET) has been using the percentage of credit sales method to estimate bad debts. During November, Services on account for $100.000 and estimated that of 1 percent of those sales would be umonli bi Required: 1. Prepare the November adjusting entry for bad debts. 2. Starting in December. ITI switched to using the agine method. At its December 31 year-end, total Accounts Receivable is $89,000, aged as follows: (1) 1-30 days old $75.000 (2) 3190 days old, S10,000, and (5) more than 90 days old. $4.000. The average rate of uncollectibility for each age group is estimated to be (1) 10 percent, (2) 20 percent, and (3) 40 percent, respectively. Prepare a schedule to estimate an appropriate year-end balance for the Allowance for Doubtful Accounts car 3. Before the end-of-year adjusting entry is made, the Allowance for Doubtful Accounts has a $1,600 credit balance at December 31. Prepare the December 31 adjusting entry. 4. Show how the various accounts related to accounts receivable should be shown on the December 31 balance sheet.

Answer 1

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Innovative Tech Inc.
Answer 1
Calculation of Bad Debt Expense
Credit sales for November	100,000.00
1% of Credit sales	1,000.00
Uncollectible is 1/2 of 1%	500.00
Journal Entry
Account	Debit $	Credit $
Bad Debt Expense	500.00
Allowance for doubtful accounts		500.00
Answer 2
Calculation of allowance for doubtful accounts balance
	A	B	C=A*B
Days Past due	Amount	% uncollectible	Allowance balance
1-30	75,000.00	10%	7,500.00
31-90	10,000.00	20%	2,000.00
90+ days	4,000.00	40%	1,600.00
Total	89,000.00		11,100.00
So allowance for doubtful accounts balance at the end of December should be $ 11,100.
Answer 3
Allowance for doubtful accounts balance should be			11,100.00
Balance already in the account			1,600.00
Bad debt Expense			9,500.00
Journal Entry for adjustment
Account	Debit $	Credit $
Bad Debt Expense	9,500.00
Allowance for doubtful accounts		9,500.00
Answer 4
Balance Sheet
Assets	Amount $	Amount $
Accounts receivable (gross)	89,000.00
Less: Allowance for doubtful accounts	11,100.00
Accounts receivable (net)		77,900.00