Question

On December 31, Jarden Co.'s Allowance for Doubtful Accounts has an unadjusted credit balance of $15,000. Jarden prepares a schedule of its December 31 accounts receivable by age.

Accounts Receivable		Age of Accounts Receivable	Expected Percent Uncollectible
$	800,000	Not yet due	1.30	%
	320,000	1 to 30 days past due	2.05
	64,000	31 to 60 days past due	6.55
	32,000	61 to 90 days past due	33.00
	12,800	Over 90 days past due	69.00

Required:
1. Compute the required balance of the Allowance for Doubtful Accounts at December 31.

	Accounts Receivable   Percent Uncollectible (#.##%)   Estimated Uncollectible   Not due:   x   =     1 to 30:   x   =     31 to 60:   x   =     61 to 90:   x   =     Over 90:   x   =     Estimated balance of allowance for uncollectibles   $0

2. Prepare the adjusting entry to record bad debts expense at December 31. (Round percentage answers to nearest whole percent. Do not round intermediate calculations.)

3. On June 30 of the next year, Jarden concludes that a customer’s $5,600 receivable is uncollectible and the account is written off. Does this write off directly affect Jarden's net income?

Answer 1

Solution

Jarden Co

1. Computation of the required balance of the Allowance for Doubtful Accounts at December 31 –

Jarden Company
Age	Accounts Receivable	Percent Uncollectible	Amount Uncollectible
Not Due	$800,000	1.30%	$10,400
1-30 days	$320,000	2.05%	$6,560
31 to 60 days	$64,000	6.55%	$4,192
61 to 90 days	$32,000	33%	$10,560
Over 90 days	$12,800	69%	$8,832
Total			$40,544

Required balance of the Allowance for Doubtful Accounts at December 31 is $40,544.

2. Adjusting entry to record the bad debts expense at December 31 –

Date	Account Titles and Explanation	Debit	Credit
31-Dec	Bad Debts Expense	$25,544
	Allowance for Doubtful Accounts		$25,544
	(To record bad debts expense, 40,544 - 15,000 = 25,544)

Note – bad debts expense = required balance of allowance for doubtful accounts – unadjusted credit balance

= 40,544 – 15,000 = $25,544

3. The write off of an uncollectible from a customer’s receivable does not directly affect Jarden’s net income.

Explanation –

Journal entry to record the write off would be as follows,

Allowance for Doubtful Accounts           Dr. $5,600

      Accounts Receivable                          Cr. $5,600

The above entry does not include any income statement account, hence the net income is not affected.