Question

Credit Losses Based on Accounts Receivable At December 31, the Selling Company had a balance of $1,494,800 in its Accounts Receivable account and a credit balance of $16,800 in the Allowance for Doubtful Accounts account. The accounts receivable T-account consisted of $1,516,000 in debit balances and $21,200 in credit balances. The company aged its accounts as follows: Current $1,220,000 0-60 days past due 180,000 61-180 days past due 76,000 Over 180 days past due 40,000 $1,516,000 In the past, the company has experienced credit losses as follows: 1% of current balances, 5% of balances 0-60 days past due, 15% of balances 61-180 days past due, and 40% of balances over six months past due. The company bases its allowance for doubtful accounts on an aging analysis of accounts receivable. Required a. Prepare the adjusting entry to record the allowance for doubtful accounts for the year. b. Show how Accounts Receivable (including the credit balances) and the Allowance for Doubtful Accounts would appear on the December 31 balance sheet. a. General Journal Date Description Debit Credit Dec.31 Answer Answer 0 Answer 0 Answer Answer 0 Answer 38,000 To record allowance for credit losses. b. (Do not use negative signs with your answers.) Current Assets: Answer Answer 1,516,000 Answer Answer 21,200 Answer 0 Current Liabilities: Customers' Overpayments Answer

Answer 1

Please find below table useful to compute desired results: -

1 Calculation of Bad debt expenses Accounts receivables 1220000 180000 76000 40000 2 Age 3 Current 4 0 -60 days 5 60--180 days 6 Over 180 days 7 Required balance of Allowance 8 Less: Actual credit balance 9 Bad debts expenses 10 11 12 Date 13 Dec. 31 14 % Uncoll. Estimated Allowance 10.01 =B3*C3 0.05 =B4*C4 0.15 =B5*C5 =B6*C6 =SUM(D3-D6) -16800 =D7+D8 104 Credit General Journal Description Bad debts expenses Allowance for doubtful accounts (to record allowance for credit losses) Debit =D9 =C13 15 16 17 Current assets: 18 Accounts receivable 19 Less: Allowance for doubtful accounts =SUM(B3-B6) =D7 20 =B18-B19 21 Current liabilities: 22 Customer overpayments 21200

End results would be as follows: -

A 1 2 Age 3 Current 4 0 -60 days 5 60--180 days 6 Over 180 days 7 Required balance of Allowance 8 Less: Actual credit balance 9 Bad debts expenses 10 Calculation of Bad debt expenses Accounts receivables 1,220,000 180.000 76,000 40.000 % Uncoll. Estimated Allowance 12,200 9,000 11.400 40% 16.000 48.600 (16.800) 31.800 11 Credit General Journal Description Bad debts expenses Allowance for doubtful accounts (to record allowance for credit losses) 12 Date 13 Dec. 31 14 15 Debit 31.800 31.800 16 17 Current assets: 18 Accounts receivable 19 Less: Allowance for doubtful accounts 20 21 Current liabilities: 22 Customer overpayments 1.516,000 48.600 1,467,400 21,200