Question

Adventure Company uses the aging of accounts receivable method to estimate Bad Debt Expense. The balance of each account receivable is aged on the basis of three categories as follows: (1) 1-30 days old, (2) 30-90 days old, and (3) more than 90 days old. Based on experience, management has estimated what portion of receivables of a specific age will not be paid as follows: (1) 1%, (2) 15%, and (3) 40%, respectively. At December 31, the unadjusted credit balance in the Allowance for Doubtful Accounts was $100. The total Accounts Receivable in each age category were: (1) 1-30 days old, $65,000, (2) 30-90 days old, $10,000, and (3) more than 90 days old, $4,000. Part a. Determine the balance of the Allowance for Doubtful Accounts at the end of the current year by preparing the Aging of Accounts Receivable table. Part b. Prepare the appropriate adjusting entry dated December 31. DATE CREDIT DEBIT ACCOUNT NAME Part c. Show how this would be reported on the Balance Sheet.

Answer 1

a) Schedule

Days	Account receivable	% Uncollectible	$ Uncollectible
1-30 days	65000	1%	650
30-90 days	10000	15%	1500
Over 90 days	4000	40%	1600
Total	79000		3750

Estimated uncollectible amount = 3750

b) Adjusting entry

date	account and explanation	debit	Credit
Dec 31	Bad debt expense (3750-100)	3650
	Allowance for doubtful accounts		3650

c) Balance sheet

Current assets
Account receivable	79000
Less: Allowance for doubtful accounts	-3750	75250