Question

Entry for Uncollectible Accounts

Easy Rider International is a wholesaler of motorcycle supplies. An aging of the company's accounts receivable on December 31, 20Y3, and a historical analysis of the percentage of uncollectible accounts in each age category are as follows:

Age Interval                         Balance                   Percent Uncollectible
Not past due                        $1,850,000                           1%
1–30 days past due                750,000                            2 
31–60 days past due              100,000                            6 
61–90 days past due                60,000                            14 
91–180 days past due              45,000                            60 
Over 180 days past due            25,000                            90    

                                                $2,830,000     

Assume that the allowance for doubtful accounts for Easy Rider International had a negative balance of $(13,300) as of December 31, 20Y3.

Illustrate the effects of the adjustment for uncollectible accounts as of December 31, 20Y3, on the accounts and financial statements.

If no account or activity is affected, select "No effect" from the dropdown list and leave the corresponding number entry box blank. Enter account decreases and cash outflows as negative amounts.

Balance Sheet:
Statement of cash flows          Assets   = Liabilites + stockholders equity       

                                                 Allowance for doubtful accounts + no effect = No effect + Retained earnings

Dec. 31         ______________________________________          0 = 0 +__________________________________
Statemet of cash flows                                                                                    Bad Debt Expense ___________
No Effect                     0

Answer 1

Estimated Allowance balance:
Age		Balance	% Uncoll.	Estimated Allowance
Not past due		1850000	1%	18500
1--30 days		750000	2%	15000
31--60 days		100000	6%	6000
61--90 days		60000	14%	8400
91--180 days		45000	60%	27000
Over 180 days		25000	90%	22500
		2830000		97400
Estimated required balance of Allowance				97400
Add: debit balance of Allowance				13300
Bad debts expenses				110700
Bad debts expenses			110700
Allowance fr doubtful account				110700
Date	Assets          =		Liabilities +	Common Stock +		Ret Earn.	Revenue-	Expense=	Net income	Statement of CF
31-Dec	-110700					-110700		110700	-110700	NA
Note: Allowance will reduce the balance of Accounts recievable and hence assets balance reduces.