Homework SourseInnovative Tech Inc ITI uses the percentage of credit sales
Innovative Tech Inc. (ITI) uses the percentage of credit sales method to estimate bad debts each month and then uses the aging method at year-end. During November, ITI sold services on account for $130,000 and estimated that 1/2 of one percent of those sales would be uncollectible. At its December 31 year-end, total Accounts Receivable is $99,900, aged as follows: (1) 1–30 days old, $84,000; (2) 31–90 days old, $11,000; and (3) more than 90 days old, $4,900. Experience has shown that for each age group, the average rate of uncollectibility is (1) 10 percent, (2) 20 percent, and (3) 40 percent, respectively. Before the end-of-year adjusting entry is made, the Allowance for Doubtful Accounts has a $2,050 credit balance at December 31.
Prepare the November adjusting entry for bad debts. (If no entry is required for a transaction/event, select \"No Journal Entry Required\" in the first account field.)
| Innovative Tech Inc. (ITI) uses the percentage of credit sales method to estimate bad debts each month and then uses the aging method at year-end. During November, ITI sold services on account for $130,000 and estimated that 1/2 of one percent of those sales would be uncollectible. At its December 31 year-end, total Accounts Receivable is $99,900, aged as follows: (1) 1–30 days old, $84,000; (2) 31–90 days old, $11,000; and (3) more than 90 days old, $4,900. Experience has shown that for each age group, the average rate of uncollectibility is (1) 10 percent, (2) 20 percent, and (3) 40 percent, respectively. Before the end-of-year adjusting entry is made, the Allowance for Doubtful Accounts has a $2,050 credit balance at December 31. |
Solution
Allowance for doubtful accounts balance should = (84000*10%+11000*20%+4900*40%) = 12560
Adjusting entry :
| Date | account & explanation | debit | credit |
| Nov 30 | Bad debt expense (12560-2050) | 10510 | |
| Allowance for doubtful accounts | 10510 | ||
| (To record adjusting entry) |
