Question

Arundel Company uses aging to estimate uncollectibles.  At the end of the fiscal year, December 31, 2018, Accounts Receivable has a balance that consists of:

Dollar Value	Age of Account	Estimated Collectible
$235,000	< 30 days old	99.5%
65,000	30 to 60 days old	91.5%
35,000	61 to 120 days old	71.5%
6,000	> 120 days old	19.0%

The current unadjusted Allowance for Uncollectible Accounts balance is a debit balance of $2,000 and the Bad Debt Expense accounts has an unadjusted balance of zero. After the adjusting entry is made, what will be the dollar balances in the Allowance for Doubtful Accounts? Round to nearest whole dollar.

Answer 1

Computation of estimated amount of bad debt

Dollar Amount	Age of account	Estimated collectible	Bad debt (%)	Estimated bad debt
$                                                      235,000.00	< 30 days	99.50%	0.500%	$                 1,175.00
$                                                        65,000.00	30 to 60 days	91.50%	8.500%	$                 5,525.00
$                                                        35,000.00	61 to 120 days	71.50%	28.500%	$                 9,975.00
$                                                          6,000.00	>120 days	19.00%	81.000%	$                 4,860.00
				$               21,535.00

Adjustment entry that needs to be passed-:

Allowance for uncollectible has currently have a debit balance of $2,000.

Estimated bad debt is $21,535. So we need to create a provision of $21,535 + $2,000 = $23,535

Uncollectible accounts receivable provision (PnL Item) A/c Dr. $23,535

To Allowances for uncollectible A/c $23,535

(Being provision created for uncollectible amount by the Company)

After passing the above adjustment entry, allowance for doubtful accounts will have a credit balance $21,535.