Question

Problem 5-85A (Algorithmic)
Determining Bad Debt Expense Using the Aging Method

At the beginning of the year, Tennyson Auto Parts had an accounts receivable balance of $31,800 and a balance in the allowance for doubtful accounts of $2,980 (credit). During the year, Tennyson had credit sales of $624,300, collected accounts receivable in the amount of $602,700, wrote off $18,600 of accounts receivable, and had the following data for accounts receivable at the end of the period:

Accounts Receivable Age		Amount		Proportion Expected to Default
Current		$18,500		0.01
1–15 days past due		5,300		0.02
16–45 days past due		3,100		0.08
46–90 days past due		3,600		0.15
Over 90 days past due		2,400		0.30
		$32,900

Required:

1. Determine the desired postadjustment balance in allowance for doubtful accounts.
$

2. Determine the balance in allowance for doubtful accounts before the bad debt expense adjusting entry is posted.
$

3. Compute bad debt expense.
$

4. Prepare the adjusting entry to record bad debt expense.

	Record adjusting entry for bad debt expense estimate

Answer 1

Requirement 1:

Age	Current	1-15	16-45	46-90	90+	Total
Accounts receivable	$18,500	$5,300	$3,100	$3,600	$2,400	$32,900
x % of uncollectible	0.01	0.02	0.08	0.15	0.3
= Uncollectibles	$185	$106	$248	$540	$720	$1,799

Therefore,

the desired post-adjustment balance in allowance for doubtful accounts.is $1,790

Requirement 2:

Allowance for doubtful accounts, Beginning balance Cr.	$2,980
Written off	($18,600)
Allowance for doubtful accounts, Balance before adjustments Dr.	$15,620

Therefore,

$15,620 of Debit balance in allowance for doubtful accounts before the bad debt expense adjusting entry is posted.

Requirement 3:

Allowance for doubtful accounts, Before adjustments Dr.	$15,620
Allowance for doubtful accounts, after adjustments Cr.	($1,790)
Bad debt expense	$13,830

Requirement 4:

Account title and explanation	Debit	Credit
Bad debt expense	$13,830
Allowance for doubtful accounts		$13,830
[To record adjusting entry for bad debt expense estimate]