Question

Spade Agency separates its accounts receivable into three age groups for purposes of estimating the percentage of uncollectible accounts. In addition, the balance of Allowance for Uncollectible Accounts before adjustment is $6,500 (credit).Accounts not yet due = $36,000; estimated uncollectible = 4%.Accounts 1–60 days past due = $21,000; estimated uncollectible = 25%.Accounts more than 60 days past due = $16,000; estimated uncollectible = 50%.Required:a. Compute the total estimated un-collectible accounts.b. Record the year-end adjustment for estmated un-collectable accounts.

Answer 1

Answer:

a. total estimated uncollectible accounts is $21,190

b. to entry the adjustment, we have to debit bad debt expense and credit allowance for doubtful accounts in the amount of $14,690

Explanation:

a. to compute the estimated uncollectible accounts, we have to multiply the specific % to the accounts receivable plus the beginning balance;

•Accounts not due

$36,000 x 4% = $1,440

•Accounts 1 - 60 days past due

$21,000 x 25% = $5,250

•Accounts more than 60 days past due

$16,000 x 50% = $8,000

So the total uncollectible accounts would be; $6,500 + $1,440 + $5,250 + $8,000 = $21,190

b. to record the year-end adjustment of the uncollectible accounts, we have to debit bad debt expense and credit allowance for doubtful accounts in the amount of $14,690. This figure is the uncollectible amount we computed earlier based on the aging.