Question

Q2:
Brown Cow Dairy uses the balance sheet approach (aging of accounts receivable) to estimate the uncollectible accounts expense. The balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, $25,000; (2) up to 120 days past due, $10,000; and (3) more than 120 days past due, $5,000. Experience has shown that, for each age group, the average uncollectible percentage of receivables are (1) 2 percent, (2) 10 percent, (3) 30 percent, respectively. At December 31, 2017, the allowance for doubtful accounts balance was $600 (credit) before the end-of-period adjusting entry was made.

Required:
a. Compute the estimated amount of uncollectible accounts.
b. Prepare the adjusting entry needed to bring the Allowance for Doubtful Accounts to the proper amount.
c. Assume that on January 20 of the following year, the company learned that an account receivable that had originated on Oct. 15 in the amount of $350 was worthless because of the bankruptcy of the client, Pink Goat. Prepare the journal entry required on January 20 to write off this account.
d. After selling all Pink Goat’s assets, the court decided to pay Brown Cow Dairy $200 of the balance owned by Pink Goat on March 06. Prepare the journal entries required to realize the partial recovery of this account receivable.
 

Answer 1

Solution as per below image: