Question

Daley Company prepared the following aging of receivables analysis at December 31.

				Days Past Due
	Total			0			1 to 30				31 to 60				61 to 90				Over 90
Accounts receivable	$	580,000		$	398,000			$	92,000			$	38,000			$	20,000			$	32,000
Percent uncollectible					3	%			4	%			7	%			9	%			12	%

a. Complete a table to calculate the estimated balance of Allowance for Doubtful Accounts using aging of accounts receivable.
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 $3,800 credit.
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 $300 debit.

Part 2

Daley Company prepared the following aging of receivables analysis at December 31.

				Days Past Due
	Total			0			1 to 30				31 to 60				61 to 90				Over 90
Accounts receivable	$	580,000		$	398,000			$	92,000			$	38,000			$	20,000			$	32,000
Percent uncollectible					3	%			4	%			7	%			9	%			12	%

a. Estimate the balance of the Allowance for Doubtful Accounts assuming the company uses 5% of total accounts receivable to estimate uncollectibles, instead of the aging of receivables method.
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 $12,200 credit.
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 $1,200 debit.

Answer 1

Solution 1a:

Computation of balance of allowance for doubtful accounts
Ageing	Balance	Percentage Uncollectible	Estimated uncollectible amount
Not yet due	$398,000.00	3%	$11,940.00
1-30 days	$92,000.00	4%	$3,680.00
31-60 days	$38,000.00	7%	$2,660.00
61-90 days	$20,000.00	9%	$1,800.00
Over 90 days	$32,000.00	12%	$3,840.00
Total	$580,000.00		$23,920.00

Solution 1b:

Adjusting Journal Entries - Daley Company
Date	Particulars	Debit	Credit
31-Dec	Bad debts expense Dr ($23,920 - $3,800)	$20,120.00
	To Allowance for doubtful accounts		$20,120.00
	(To record bad debts expense)

Solution 1c:

Adjusting Journal Entries - Daley Company
Date	Particulars	Debit	Credit
31-Dec	Bad debts expense Dr ($23,920 + $300)	$24,220.00
	To Allowance for doubtful accounts		$24,220.00
	(To record bad debts expense)

Solution 2a:

Estimated balance for allowance for doubtful accounts = $580,000*5% = $29,000

Solution 2b:

Adjusting Journal Entries - Daley Company
Date	Particulars	Debit	Credit
31-Dec	Bad debts expense Dr ($29,000 - $12,200)	$16,800.00
	To Allowance for doubtful accounts		$16,800.00
	(To record bad debts expense)

Solution 2c:

Adjusting Journal Entries - Daley Company
Date	Particulars	Debit	Credit
31-Dec	Bad debts expense Dr ($29,000 + $1,200)	$30,200.00
	To Allowance for doubtful accounts		$30,200.00
	(To record bad debts expense)