Question

Kiley Company had a $600 credit balance in Allowance for Doubtful Accounts at December 31, 2018, before the current year's provision for uncollectible accounts. Aging of the accounts receivable revealed the following:

		Estimated Percentage Uncollectible
Current accounts	120,000	1%
1-30 days past due	12,000	3%
31-60 days past due	10,000	6%
61-90 days past due	5,000	12%
Over 90 days past due	8,000	30%
Total Accounts Receivable	155,000

(a)   Prepare the adjusting entry on December 31, 2018, to recognize bad debts expense.

(b)   Assume the same facts as above except that the Allowance for Doubtful Accounts account had a $500 debit balance before the current year's provision for uncollectible accounts. Prepare the adjusting entry for the current year's provision for uncollectible accounts.

(c)   Assume that the company has a policy of providing for bad debts at the rate of 1% of Sales, that Sales for 2014 were $400,000, and that Allowance for Doubtful Accounts had a $550 credit balance before adjustment. Prepare the adjusting entry for the current year's provision for bad debts.

Answer 1

Calculation of estimated balance of Allowance for doubtful accounts:

For a) and b). Estimated balance of Allowance for doubtful accounts is $5160 means at the end this balance should be in the account and when the beginning balance is $600 credit, we have to pass the adjusting entry for balance amount of $4560 which makes it ending balance of $5160 credit.
In b). when beginning balance is $500 debit, the adjusting amount is $5,660 which makes the ending balance equal to $5160 credit i.e. ($5660 credit - $500 debit).
In c). Same calculation is done as done in part b). except here estimated balance of of Allowance for doubtful accounts is 1% of sales.