Answer:
a. Estimate the balance of the Allowance for Doubtful Accounts assuming the company uses 4% of total accounts receivable to estimate uncollectibles, instead of the aging of receivables method.
Dr Bad Debt Expense $ 23.000
Cr Allowance for Uncollectible Accounts $ 23.000
b. Prepare the adjusting entry to record Bad Debts Expense using the estimate from part a.
Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $12,100 credit
Dr Bad Debt Expense $ 5.720
Cr Allowance for Uncollectible Accounts $ 5.720
c. Prepare the adjusting entry to record bad debts expense using the estimate from part a.
Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $1,100 debit.
Dr Bad Debt Expense $ 18.920
Cr Allowance for Uncollectible Accounts $ 18.920
Explanation:
Total Accounts Receivable $575,000 * 4% = $23,000
Dr Bad Debt Expense $ 23,000
Cr Allowance for Uncollectible Accounts $ 23,000
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$397,000 2% $7,940 Past Due 0 days
$91,000 3% $2,730 Past Due 1-30 days
$37,000 6% $2,220 Past Due 31-60 days
$19,000 8% $1,520 Past due 61-90 days
$31,000 11% $3,410 Over 90 days
$575,000 $17,820
If the unadjusted balance in the Allowance for Doubtful Accounts is a $12,100 credit then:
$17,820 - $12,100 = $5,720
Dr Bad Debt Expense $ 5,720
Cr Allowance for Uncollectible Accounts $ 5,720
Because the company already has a CREDIT balance in the Allowance for Doubtful Accounts it's necessary to register an entry that complement the existing value and reflect the total balance as calculated.
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If the unadjusted balance in the Allowance for Doubtful Accounts is a $1,100 debit.
$17,820 + $1,100 = $18,920
Because the company already has a DEBIT balance in the Allowance for Doubtful Accounts it's necessary to register an entry that compensate the existing value and reflect the total balance as calculated.
Dr Bad Debt Expense $ 18,920
Cr Allowance for Uncollectible Accounts $ 18,920
