Question

Innovative Tech Inc. (ITI) has been using the percentage of credit sales method to estimate bad debts. During November, ITI sold services on account for $100,000 and estimated that 3/4 of 1 percent of those sales would be uncollectible Required: 1. Prepare the November adjusting entry for bad debts. 2. Starting in December, ITI switched to using the aging method. At its December 31 year-end. total Accounts Receivable is $93,200. aged as follows: (1) 1-30 days old, $77000: (2) 31-90 days old. $12.000; and (3) more than 90 days old, $4,200. The average rate of uncollectibility for each age group is estimated to be (1) 12 percent, (2) 24 percent, and (3) 48 percent, respectively. Prepare a schedule to estimate an appropriate year-end balance for the Allowance for Doubtful Accounts. 3. Before the end-of-year adjusting entry is made, the Allowance for Doubtful Accounts has a $1.700 credit balance at December 31. Prepare the December 31 adjusting entry. 4. Show how the various accounts related to accounts receivable should be shown on the December 31 balance sheet. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Prepare the November adjusting entry for bad debts. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) View transaction list

Answer 1

1) Adjusting entry

Date	account and explanation	Debit	Credit
Nov	Bad debt expense (100000*1%*3/4)	750
	Allowance for doubtful accounts		750

2) Schedule

	1-30	31-90	>90	Total
Account receivable	77000	12000	4200	93200
% Uncollectible	12%	24%	48%
$ Uncollectible	9240	2880	2016	14136

3) Journal entry

date	account and explanation	Debit	Credit
Dec	Bad debt expense (14136-1700)	12436
	Allowance for doubtful accounts		12436

4) Balance sheet presentation

Current assets
Account receivable	93200
Less: Allowance for doubtful accounts	-14136	79064