Question

Revise your worksheet to reflect these updated assumptions then answer the questions that follow. You have been provided with the following Aging Report to use to adjust the Allowance for Uncollectible Accounts for a company at year end. Age Group Not yet due 1-30 days past due 31-60 days past due 61-90 days past due Over 90 days past due Accounts Receivable $ 80,000 35,000 18,000 12,000 13,000 $ 158,000 Estimated Percent Uncollectible 5% 10% 20% Allowance for Uncollectible Accounts 1,600 Credit After reviewing the data, you note the 'not yet due category is overstated by 20%, while the 'Over 90 days' category is understated by 20%, (this error also caused the AR balance on the schedule to not equal the amount of Accounts Receivable on the balance sheet). Also, you note the balance in the Allowance account is actually a debit, rather than a credit. Being that the normal balance for this account is a credit, the accountant hadn't noticed the issue.

Answer 1

1.

Age	Accounts Receivable	Estimated Percent Uncollectible	Allowance for Doubtful Debts
Not yet due	$            66,667	5%	$            3,333
1-30 days	$            35,000	10%	$            3,500
31-60 days	$            18,000	20%	$            3,600
61-90 days	$            12,000	40%	$            4,800
Over 90 days	$            15,600	80%	$          12,480
Total	$        1,47,267		$         27,713

Correct Accounts Receivable for Not yet due = $80000/1.2 = $66667 since it was overstated by 20%
for Over 90 days = $13000 x 1.2 = $15600 since it was understated by 20%

(b)

Account Titles	Debit	Credit
Bad Debt Expense	$            29,313
Allowance for Doubtful Debts		$          29,313

Bad Debt expense = $27713+1600 = $29313

(c) Answer is b.
Since more amount is required to make it credit from debit