Question

Dhaliwal Digital categorizes its accounts receivable into three age groups for purposes of estimating its allowance for uncollectible accounts.

 1. Accounts not yet due = $180,000, estimated uncollectible = 15%.

 2. Accounts 1-45 days past due $25,000, estimated uncollectible = 20%.

 3. Accounts more than 45 days past due $10,000, estimated uncollectible = 25%.

 Before recording any adjustments, Dhaliwal has a debit balance of $45,100 in its allowance for uncollectible accounts 

Required:

 1. Estimate the appropriate 12/31/2021 balance for Dhaliwal's allowance for uncollectible accounts

 2. What journal entry should Dhaliwal record to adjust its allowance for uncollectible accounts?

Answer 1

Solution for Sub-question 1

A) Opening balance of uncollectible accounts as on 01/01/2021 = 45,100

B) Additional Uncollectibles from accounts not yet due = $ 180,000 x 15% (0.15) = 27,000

C) Additional Uncollectibles from accounts 1-45 days past due = $ 25,000 x 20% (0.20) = 5,000

D) Additional Uncollectibles from accounts more than 45 days past due = $ 10,000 x 25% (0.20) = 2,500

Closing balance of Dhaliwal's allowance for uncollectible accounts = A + B + C + D

= 45,100 + 27,000 + 5,000 + 2,500

Uncollectible accounts as on 12/31/2021 = $ 79,600

Solution for Sub-question 2

Journal Entry

Here we will only consider the current year addition since the account already has opening balance of 45,100. By passing this entry we will arrive at the above calculated closing balance (79,600) in the books of ledger. In the question its only mentioned that the categorization is for the sole purpose of estimating allowance percentages based on the due dates. hence this categorization should not ideally affect the accounts receivable account. we will take the sum of all three category estimates to Journalise this transaction as on 31/12/2021. The transaction amount will = B + C + D = $ 34,500.

Particulars	Debit	Credit
Accounts Receivable -Debit	$ 34,500
To Allowance for Uncollectible accounts		$ 34,500

After passing this entry. Closing balance for Allowance for Uncollectible accounts will be $ 79,600

Apologize for any discrepancy in the format of journal. Hope the explanation makes the problem clear to you.