In: Accounting
aging 26000 2%. 90000 5%. 5000 10% 1900 25% 500 40%
Fife Company has the following account balances at December 31
of 2019: Accounts Receivable $42,400 and Allowance for Doubtful
Accounts $1,600 (credit balance). Fife uses the
aging of accounts receivable to
estimate bad debts. The following aging schedule reflects the
situation at year-end:
(1) Calculate the amount of the Allowance for Doubtful Accounts
that should appear on the December 31, 2019 Balance Sheet.
(2) Prepare the journal entry to record bad debts expense for the
current year.
Answer 1)
Calculation of amount of allowance for doubtful debts that should appear on December 31, 2019
Amount of Accounts receivable |
Estimated percentage of uncollectible |
Estimated amount of uncollectible |
|
$26,000 |
2% |
$520 |
|
$9,000 |
5% |
$450 |
|
$5,000 |
10% |
$500 |
|
$1,900 |
25% |
$475 |
|
$500 |
40% |
$200 |
|
Total |
$42,400 |
$2,145 |
Therefore the amount of allowance for Doubtful accounts that should appear on December 31, 2019 is $ 2,145.
Answer 2)
Journal Entry
Date |
Account Titles and Explanations |
Debit |
Credit |
December 31' 2019 |
Bad debts expense |
$545 |
|
Allowance for Doubtful accounts |
$545 |
||
(To record bad debts expense) |
Working Note:
Bade debts expense for the year = Amount of allowance for bad debts that should appear on December 31, 2019 – Amount of allowance for bad debts before adjustment
= $ 2,145 - $ 1,600
= $ 545