Aging accounts receivable and accounting for bad debts LO3 LO6 Hovak Company has cred...

Aging accounts receivable and accounting for bad debts LO3 LO6

Hovak Company has credit sales of $4.5 million for year 2010. At December 31, 2010, the company’s

Allowance for Doubtful Accounts has an unadjusted debit balance of $3,400. Hovak prepares a schedule

of its December 31, 2010, accounts receivable by age. On the basis of past experience, it estimates

the percent of receivables in each age category that will become uncollectible. This information is summarized

here:

Required

1. Compute the required balance of the Allowance for Doubtful Accounts at December 31, 2010, using

the aging of accounts receivable method.

2. Prepare the adjusting entry to record bad debts expense at December 31, 2010.

Check (2) Dr. Bad Debts Expense

$31,390

Analysis Component

3. On July 31, 2011, Hovak concludes that a customer’s $3,455 receivable (created in 2010) is uncollectible

and that the account should be written off. What effect will this action have on Hovak’s 2011

net income? Explain.