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Question 1 (21 score) Recording and Reporting Allowance for Doubtful Accounts Using the Percentage of Credi Sales and Aging of Accounts Receivable Methods Innovative Tech Inc. (ITT) uses the percentage of credit sales method to estimate bad debts each month and then uses the aging method at year-end. During November, IIT sold services on account for $100,000 and estimated that % of one percent of those sales would be uncollectible. At its December 31 year end, total Accounts Receivable is $89,000, aged as follows: () 1-30 days old, $75,000: (2) 31-90 days old, $10,000, and (3) more than 90 days old, $4,000 Experience has shown that for each age group, the average rate of uncollectibility is (1) 10 percent, (2) 20 percent, and (3)40 percent, respectively. Before the end-of-year adjusting entry is made, the Allowance for Doubtful Accounts has a $1,600 credit balance at December 31 Required: 1. Prepare the November adjusting entry for bad debts 2. Prepare a schedule to estimate an appropriate year-end balance for the Allowance for Doubtful Accounts. 3. 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

Answer 1

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	Part -1 November Adjusting Entry:
Date	Account	Debit	Credit
Nov 30	Bad debt Expense	$             500
	Allowance for doubtful accounts		$                500
	(credit sale 100000*0.5%)
	Part -2 Schedule
		1-30	31-90	> 90	Total
	Accounts Receivable	$        75,000	$          10,000	$         5,000	$     90,000
	Estimated Uncollectible (%)	10%	20%	40%
	Estimated Uncollectible ($)	$          7,500	$            2,000	$         2,000	$     11,500
	Part -3 December Adjusting Entry
Date	Account	Debit	Credit
Dec 30	Bad debt Expense	$          9,900
	Allowance for doubtful accounts		$            9,900
	Year End Balance	$        11,500
	Less: Already Credit	$          1,600
	Adjusting Entry	$          9,900
	Part -4
	Accounts Receivable, Gross	$        90,000
	Less: Allowance for doubtful accounts	$        11,500
	Accounts Receivable, Net	$        78,500