Question

Pachel Corporation reports the following information pertaining to its accounts receivable:

  

	Days Past Due
Current	1–30	31–60	61–90	Over 90
$ 60,000	$ 40,000	$ 25,000	$ 12,000	$ 2,000

  

The company's credit department provided the following estimates regarding the percent of accounts expected to eventually be written off from each category listed above:

  

Current receivables outstanding	2	%
Receivables 1–30 days past due	4
Receivables 31–60 days past due	16
Receivables 61–90 days past due	40
Receivables over 90 days past due	90

  

The company uses a statement of financial position approach to estimate credit losses.

  

a.	Record the company's impairment loss of receivable, assuming it has a $1,400 credit balance in its Allowance for Impairment prior to making the necessary adjustment. (Omit the "$" sign in your response.)

General Journal	Debit	Credit
(Click to select)Accounts receivableMarketable securitiesCashGain on sale of investmentsAccounts payableLoss on sale of investmentsAllowance for ImpairmentImpairment loss of receivable
(Click to select)Loss on sale of investmentsAccounts receivableImpairment loss of receivableGain on sale of investmentsCashMarketable securitiesAccounts payableAllowance for Impairment

b.	Record the company's impairment loss of receivable, assuming it has a $1,600 debit balance in its Allowance for Impairment prior to making the necessary adjustment. (Omit the "$" sign in your response.)

General Journal	Debit	Credit
(Click to select)Marketable securitiesImpairment loss of receivableGain on sale of investmentsCashAccounts receivableLoss on sale of investmentsAllowance for ImpairmentAccounts payable
(Click to select)Allowance for ImpairmentAccounts payableGain on sale of investmentsAccounts receivableLoss on sale of investmentsImpairment loss of receivableCashMarketable securities

Answer 1

Current Receivables outstanding	$60,000	2%	$1,200
Receivables 1-30 days past due	$40,000	4%	$1,600
Receivables 31-60 days past due	$25,000	16%	$4,000
Receivables 61-90 days past due	$12,000	40%	$4,800
Receivables Over 90 days past due	$2,000	90%	$1,800
Ending Balance Allowance for Impairment			$13,400

(a)  Bad Debt Expense/ Loss on impairment = $13400 - 1400 = $12000

Bad Debt expense Dr. 12,000

To allowance for impairment 12,000

(b) Bad Debt Expense/ Loss on impairment = $13400 + 1600 = $15000

Bad Debt expense Dr. 15,000

To allowance for impairment 15,000