Question

Zuo Software categorizes its accounts receivable into four age groups for purposes of estimating its allowance for uncollectible accounts. 1. Accounts not yet due = $400,000; estimated uncollectible = 8%. 2. Accounts 1–30 days past due = $50,000; estimated uncollectible = 15%. 3. Accounts 31–90 days past due = $40,000; estimated uncollectible = 30% 4. Accounts more than 90 days past due = $30,000; estimated uncollectible = 50%. At 12/31/2021, before recording any adjustments, Zuo has a credit balance of $22,000 in its allowance for uncollectible accounts. Required: 1. Estimate the appropriate 12/31/2021 balance for Zuo’s allowance for uncollectible accounts. 2. What journal entry should Zuo record to adjust its allowance for uncollectible accounts? 3. Calculate Zuo’s 12/31/2021 net accounts receivable balance.

Answer 1

Answer:

(1) $66,500

(3) $453,500

Explanation:

(1) Account receivable total:

= $400,000 + $50,000 + $40,000 +  $30,000

= $520,000

Allowance for uncollectible account total:

= ($400,000 × 8%) + ($50,000 × 15%) + ($40,000 × 30%) + ($30,000 × 30%)

= $32,000 + 7,500 + $12,000 + $15,000

= $66,500

Balance of allowance for uncollectible accounts on 12/31/2021 is $66,500.

(2) Journal entry for adjusting the allowance for uncollectible account is :

Bad debt expense A/c    Dr.    $44,500

To Allowance for uncollectible account     $44,500

(Adjusting entry)

Workings:

= Amount uncollectible - credit balance  in its allowance for uncollectible accounts

= $66,500 - $22,000

= $44,500

(3) Net account receivable balance on 12/31/2021:

Accounts receivables total = $520,000

Allowance for uncollectible account = $66,500

Net Account Receivables:

= Accounts receivables total - Allowance for uncollectible account

= $520,000  - $66,500

= $453,500