Question

Innovative Tech Inc. (TI) has been using the percentage of credit sales method to estimate bad debts. During November, II sold services on account for $140,000 and estimated that 12 of 1 percent of those sales would be uncollectible Required: 1. Prepare the November adjusting entry for bad debts. 2. Starting in December, ITI switched to using the aging method. Atits December 31 year-end, total Accounts Receivable is $86.800 aged as follows: (1)1-30 days old, $73 000, 2) 31-90 days old, $10 000, and more than 90 days old, $3,800. The average rate of uncollectibility for each age group is estimated to be ) 10 percent. 2) 20 percent, and 3) 40 percent, respectively. Prepare a schedule to estimate an appropriate year and balance for the Allowance for Doubtful Accounts 3. Before the end-of-year adjusting entry is made the Allowance for Doubtful Accounts has a $1500 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. Record the adjusting entry for bad debts as of November 30. Note: Enter debits before credits General Journal Debit Credit Date November 30 Required 1 Required 2 Required 3 Required 4 Starting in December, ITI switched to using the aging method. At its December 31 year-end, total Accounts Receivable is $86,800, aged as follows: (1) 1-30 days old, $73,000; (2) 31-90 days old, $10,000; and (3) more than 90 days old, $3,800. The average rate of uncollectibility for each age group is estimated to be (1) 10 percent, (2) 20 percent, and (3) 40 percent, respectively. Prepare a schedule to estimate an appropriate year-end balance for the Allowance for Doubtful Accounts. Show less 1-30 31-90 > 90 T otal Accounts Receivable Estimated Uncollectible (%) Estimated Uncollectible ($) Record the adjusting entry for bad debts as of December 31 Note: ter r e credits. General Journal Debit Credit Required 1 Required 2 Required 3 Required 4 Show how the various accounts related to accounts receivable should be shown on the December 31 balance sheet. Innovative Tech Inc. (IT) Balance Sheet (partial) At December 31

Answer 1

1.

Date	General Journal	Debit	Credit
		$	$
November 30	Bad Debt Expense	700
	Allowance for Doubtful Accounts		700

2.

	1-30	31-90	> 90	Total
Accounts Receivable	$ 73,000	$ 10,000	$ 3,800	$ 86,800
Estimated Uncollectible ( % )	10 %	20 %	40 %
Estimated Uncollectible ( $ )	$ 7,300	$ 2,000	$ 1,520	$ 10,820

3.

Date	General Journal	Debit	Credit
		$	$
Dec 31	Bad Debt Expense	9,320
	Allowance for Doubtful Accounts		9,320

4.

Innovative Tech Inc. Balance Sheet ( Partial ) December 31
Accounts Receivable	$ 86,800
Less: Allowance for Doubtful Accounts	(10,820)
Accounts Receivable, net	$ 75,980