Question

A company uses the aging of accounts receivable method to estimate its bad debts expense. On December 31 of the current year an aging analysis of accounts receivable revealed the following

4. A company uses the aging of accounts receivable method to estimate its bad debts expense On December 31 of the current year an aging analysis of accounts receivable revealed the following Account Age Current (not yet due) 1-30 days past due 30 60 days past due 61-90 days past due 90-120 days past due Over 120 days past due18,000 Total Balance $620,000 270,000 145,000 55,000 32,000 Estimated Uncollectible ercenta ge 0.5% 2.0% 8.0% 20.0% 50.0% 70.0% 1,140,000 Required a. Calculate the amount of the Allowance for Doubtful Accounts that should be reported on the current year-end balance sheet. (5 Points) b. Calculate the amount of the Bad Debts Expense that should be reported on the current year's income statement, assuming that the balance of the Allowance for Doubtful Accounts on January 1 of the current year was a credit balance of $41,000 and that accounts receivable written off during the current year totaled $43,200. (5 Points) (Hint: ADA T account should total to the same amount calculated in a.) 1) Calculate the Bad Debt Expense 2) Show the Bad Debt Expense ‘T' account. (all amounts and details) 3) Show the Allowance for Doubtful Accounts 'T" account. (all amounts and details) c. Prepare the adjusting journal entry to record bad de bts expense on December 31 of the current year. (5 Points) d. Show how the Accounts Receivable section will appear on the current year-end balance sheet as of December 31. (5 Points)

Answer 1

						Estimated
	Account age			Balance	percentage	Bad
						debts
	Current (not yet due)			6,20,000	0.50%	3100
	1---30 days past due			2,70,000	2%	5400
	30---60 days past due			1,45,000	8%	11600
	61--90 days past due			55,000	20%	11000
	90-120 days past due			32,000	50%	16000
	over 120 days past due			18,000	70%	12600
	Total			11,40,000		59700
a)	Amount of the Allowance for Doubtful accounts
	$59,700
b)
1)	Bad debts expense to be reported
	opening balance			41,000
	less:Written off			-43200
				2,200
	Add:Estimated bad debts			59,700
	Bad debts expense to be reported			61,900	answer
2)	T-Account
	Bad debts expense
	opening bal		0
	adjustment		61,900
	End balance		61900
3)	Allowance for Doubtful accounts
	Written		43,200	opening bal		41,000
				Bad debts expense		61,900
				end balance		59,700
c)	Adjusting entry
	Account titles & Explanations				Debit	Credit
	Bad debts expense				61,900
	Allowance for Doubtful accounts					61,900
d)	Balance sheet (partial)
	Account receivable					11,40,000
	less:Allowance for doubtful accounts					-59700
	net realizable value					10,80,300