Question

Innovative Tech Inc. (ITI) has been using the percentage of credit sales method to estimate bad debts. During November, ITI sold services on account for $160,000 and estimated that 3/4 of 1 percent of those sales would be uncollectible.
Required:

Prepare the November adjusting entry for bad debts.

Starting in December, ITI switched to using the aging method. At its December 31 year-end, total Accounts Receivable is $80,000, aged as follows: (1) 1–30 days old, $65,000; (2) 31–90 days old, $12,000; and (3) more than 90 days old, $3,000. The average rate of uncollectibility for each age group is estimated to be (1) 12 percent, (2) 24 percent, and (3) 48 percent, respectively. Prepare a schedule to estimate an appropriate year-end balance for the Allowance for Doubtful Accounts.

Before the end-of-year adjusting entry is made, the Allowance for Doubtful Accounts has a $1,100 credit balance at December 31. Prepare the December 31 adjusting entry.

Show how the various accounts related to accounts receivable should be shown on the December 31 balance sheet.

Answer 1

Answer:

The answer is given below;

Explanation:

 $160,000*(3/4)*1%=$1,200

Bad Debt Expense   Dr.$1,200

Allowance for Doubtful Accounts Dr.$1,200

$65,000*12%=$7,800

$12,000*24%=$2,880

$3,000*48%=$1,440

Total Allowance for Doubtful Accounts for December 31, $12,120

Total Allowance for Doubtful Accounts Opening                ( $1,100)

Bad Debt Expense for the year                                             $11,020

Bad Debt Expense Dr.$11,020

Allowance for Doubtful Accounts Cr.$11,020

Various Accounts to be shown pertaining to Account Receivable will be;

1.Allowance for Doubtful Accounts -Balance Sheet   $12,120