Question

Starlight, a Broadway media firm, uses the balance sheet approach to estimate the uncollectable accounts expense. At year-end an aging of the accounts receivable produced the following five groupings:

a.		Not yet due		$610,000
b.		1-30 days past due		200,000
c.		31-60 days past due		100,000
d.		61-90 days past due		64,000
e.		Over 90 days past due		18,000
		Total		$992,000

On the basis of past experience, the company estimated the percentages probably uncollectible for the above five age groups to be as follows: Group a, 1 percent; Group b, 3 percent; Group c, 10 percent; Group d, 20 percent; and Group e; 50 percent.

The Allowance for Doubtful Accounts before adjustments at December 31 showed a credit balance of $6,000.

i.) Compute the estimated amount of uncollectible accounts based on the above classification by age groups.

Amount of uncollectible accounts

$

ii.) Prepare the adjusting entry needed to bring the Allowance for Doubtful Accounts to the proper amount. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit
Accounts Payable    Accounts Receivable    Allowance For Doubtful Accounts    Bad Debt Expense    Cash
Accounts Payable    Accounts Receivable    Allowance For Doubtful Accounts    Bad Debt Expense    Cash

iii.) Assume that on January 18 of the following year, Starlight learned that an account receivable that originated on August 1 in the amount of $1,600 was worthless because of the bankruptcy of the client, May Flowers. Prepare the journal entry required on January 18 to write off this account. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit
Accounts Payable    Accounts Receivable    Allowance For Doubtful Accounts    Bad Debt Expense    Cash
Accounts Payable    Accounts Receivable    Allowance For Doubtful Accounts    Bad Debt Expense    Cash

iv.) If the Allowance for Doubtful Accounts account had a debit balance of $5,000, how would your answer to part (ii.) differ? (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit
Accounts Payable    Accounts Receivable    Allowance For Doubtful Accounts    Bad Debt Expense    Cash
Accounts Payable    Accounts Receivable    Allowance For Doubtful Accounts    Bad Debt Expense    Cash

Answer 1

	Days		Amount	%	$
	Not yet due		$610,000	1%	6100
	1-30 days past due		200,000	3%	6000
	31-60 days past due		100,000	10%	10000
	61-90 days past due		64,000	20%	12800
	Over 90 days past due		18,000	50%	9000
	Total		$992,000		43900

i.) Compute the estimated amount of uncollectible accounts based on the above classification by age groups.

Amount of uncollectible accounts

$43900

ii.) Prepare the adjusting entry needed to bring the Allowance for Doubtful Accounts to the proper amount. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit
Bad debt expense (43900-6000)	37900
Allowance for doubtful accounts		37900

iii.) Assume that on January 18 of the following year, Starlight learned that an account receivable that originated on August 1 in the amount of $1,600 was worthless because of the bankruptcy of the client, May Flowers. Prepare the journal entry required on January 18 to write off this account. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit
Allowance for doubtful accounts	1600
Account receivable		1600

iv.) If the Allowance for Doubtful Accounts account had a debit balance of $5,000, how would your answer to part (ii.) differ? (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit
Bad debt expense (43900+5000)	48900
Allowance for doubtful accounts		48900