Question

Lin’s Dairy uses the aging approach to estimate bad debt expense. The ending balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, $17,100; (2) up to 120 days past due, $6,300; and (3) more than 120 days past due, $3,300. Experience has shown that for each age group, the average loss rate on the amount of the receivables at year-end due to uncollectibility is (1) 2 percent, (2) 15 percent, and (3) 35 percent, respectively. At the end of the current year, the Allowance for Doubtful Accounts balance is $700 (credit) before the end-of-period adjusting entry is made. Required: What amount should be recorded as Bad Debt Expense for the current year? (Enter your answers as a whole percentage (i.e., 0.12 should be entered as 12).)

Answer 1

What amount should be recorded as Bad Debt Expense for the current year?
Not yet due:
22,000
Estimated Percentage Uncollectible: 3%
Estimated Amount Uncollectible: 660

Up to 120 days past due:
6500
Estimated Percentage Uncollectible: 14%
Estimated Amount Uncollectible:
910

Over 120 days past due:
2800
Estimated Percentage Uncollectible: 34%
Estimated Amount Uncollectible: 952

Estimated Balance in allowance for doubtful accounts: 2522

Current balance in allowance for doubtful accounts: 1200

Bad Debt Expense for the Year: 1322