Question

Web Wizard, Inc., has provided information technology services for several years. The company uses the percentage of credit sales method to estimate bad debts for internal monthly reporting purposes. At the end of each quarter, the company adjusts its records using the aging of accounts receivable method. The company entered into the following selected transactions during the first quarter of 2017: a. During January, the company provided services for $40,000 on credit. b. On January 31, the company estimated bad debts using 1 percent of credit sales. c. On February 4, the company collected $20,000 of accounts receivable. d. On February 15, the company wrote off a $100 account receivable. e. During February, the company provided services for $30,000 on credit. f. On February 28, the company estimated bad debts using 1 percent of credit sales. g. On March 1, the company loaned $2,400 to an employee who signed a 6 percent note, due in six months. h. On March 15, the company collected $100 on the account written off one month earlier. i. On March 31, the company adjusted for uncollectable accounts, based on the following aging analysis, which includes the preceding transactions (as well as others not listed). Prior to the adjustment, Allowance for Doubtful Accounts had an unadjusted credit balance of $1,200. J. On March 31, the company accrued interest earned on the note. Number of Days Unpaid 3 1-60 61-90 Customer Total 0-30 Over 90 $ 100 $ 80 $ 20 Altavista Tourism Bayling Bungalows Others (not shown to save Xciting Xcursions $ 200 400 17,000 400 $ 400 800 space) 8,400 1,000 6,800 400 $ 7,300 Total Accounts Receivable $18,000 $ 8, 480 $1,020 $ 1,200 Estimated uncollectable (%) 2% 10% 20% 40%

Answer 1

Solution:

Computation of allowance for estimated uncollectibles - Web Wizard
Customer	Balance	0-30 days	31-60 days	61-90 days	Over 90 days
Total Receivables	$18,000.00	$7,300.00	$8,480.00	$1,020.00	$1,200.00
Percentage uncollectibles		2%	10%	20%	40%
Allowance for doubtful accounts	$1,678.00	$146.00	$848.00	$204.00	$480.00

Event	Assets		=	Liabilities		+	Stockholder's Equity
a	Accounts receivables	$40,000.00					Service revenue	$40,000.00
b	Allowance for doubtful accounts	-$400.00					Bad debts expense	-$400.00
c	Cash	$20,000.00
	Accounts receivables	-$20,000.00
d	Allowance for doubtful accounts	$100.00
	Accounts receivables	-$100.00
e	Accounts receivables	$30,000.00					Service revenue	$30,000.00
f	Allowance for doubtful accounts	-$300.00					Bad debts expense	-$300.00
g	Note receivables	$2,400.00
	Cash	-$2,400.00
h	Accounts receivables	$100.00
	Allowance for doubtful accounts	-$100.00
	Cash	$100.00
	Accounts receivables	-$100.00
i	Allowance for doubtful accounts	-$478.00					Bad debts expense	-$478.00
j	Interest receivables	$12.00					Interest revenue	$12.00