Homework SourseAdventure Company uses the aging of accounts receivable meth
Adventure Company uses the aging of accounts receivable method to estimate Bad Debt Expense. The balance of each account receivable is aged on the basis of three categories as follows: (1) 1-30 days old, (2) 30-90 days old, and (3) more than 90 days old. Based on experience, management has estimated what portion of receivables of a specific age will not be paid as follows: (1) 3%, (2) 14%, and (3) 34%, respectively. At December 31, 2016, the unadjusted credit balance in the Allowance for Doubtful Accounts was $150. The total Accounts Receivable in each age category were: (1) 1-30 days old, $56,000, (2) 30-90 days old, $15,000, and (3) more than 90 days old, $6,000.
Required:
Calculate the estimate of uncollectible accounts at December 31, 2016.
Prepare the appropriate adjusting entry dated December 31, 2016. (If no entry is required for a transaction/event, select \"No Journal Entry Required\" in the first account field.)
| Required: | |||
| a. | Calculate the estimate of uncollectible accounts at December 31, 2016.
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Solution
Requirement (a) - Estimate of uncollectible accounts at December 31, 2016
Age of Accounts Receivables
Accounts Receivables Balance
Percentage of Uncollectible
Total Estimated Uncollectible
1-30 Days Old
$56,000
3%
$1,680
30-90 Days Old
$15,000
14%
$2,100
More than 90 Days old
$6,000
34%
$2,040
$5,820
\"Estimate of uncollectible accounts at December 31, 2016 = $5,820\"
Requirement (b) - Appropriate adjusting entry dated December 31, 2016
Date
Accounts Tittles and Explanations
Debit ($)
Credit ($)
December 31, 2016
Bad Debt Expense A/c
5,670
To Allowance for Doubtful Accounts
5,670
Bad Debt Expense
= Total Estimated Uncollectibles – Credit balance in Allowance for Doubtful Accounts
= $5,820 – 150
= $5,670
| Age of Accounts Receivables | Accounts Receivables Balance | Percentage of Uncollectible | Total Estimated Uncollectible |
| 1-30 Days Old | $56,000 | 3% | $1,680 |
| 30-90 Days Old | $15,000 | 14% | $2,100 |
| More than 90 Days old | $6,000 | 34% | $2,040 |
| $5,820 |
