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	$	615,000		$	405,000			$	99,000			$	45,000			$	27,000			$	39,000
Percent uncollectible					1	%			2	%			5	%			7	%			10	%

a. Estimate the balance of the Allowance for Doubtful Accounts assuming the company uses 6% 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 $12,900 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 $1,900 debit.

Answer 1

a. Estimated balance of allowance for uncollectables = Total accounts receivables x Percentage = $615000 x 6% =$36900

b. Journal Entry

Date	General Journal	Debit $	Credit $
December 31	Bad debt expense (Note 1)	24000
	Allowance for doubtful accounts		24000
	(To record the bad debt expense)

c. Journal Entry

Date	General Journal	Debit $	Credit $
December 31	Bad debt expense (Note 2)	38800
	Allowance for doubtful accounts		38800
	(To record the bad debt expense)

Note 1 – As computed in ‘a’ estimated balance of allowance for uncollectable required is $36900 credit balance. If the allowance for uncollectable account already had a credit balance of $12900, then only for the balance amount is journal entry is required.

Ie. $36900 - $12900 =$24000

Note 2- As computed in ‘a’ estimated balance of allowance for uncollectable required is $36900 credit balance. If the allowance for uncollectable account had a debit balance of $1900, then the journal entry is required to make for making the balance of allowance for uncollectable account to $36900credit from 1900 debit

Ie. $36900+$1900= $38800