Question

Provide the following independent (a. b. c. …) journal entries:

a. July 31, 2019. We had $800,000 of credit sales in July. We estimate that our bad debt expense will be 1% of credit sales.

b. Aug. 15, 2019. We have an account receivable from Frank Farmworker for $700. On Aug. 15 we decide that we will not collect this account, so need to write it off. On Sept. 5 we get a check from Frank in the mail.

c. Dec. 31, 2019. Allowance for Bad Debts currently has a credit balance of $8,200. We perform an aging of accounts receivable, and determine that the Allowance should have a balance of $10,100.

d. Dec. 31, 2020. We age our accounts receivable:

                                                            Age of accounts                                                    .

Days:                                 1-30                      31-60                  61-90                    91+                       Total      

Accounts receivable        $85,000               $40,000               $10,000               $2,000                  $137,000

Estimate % uncollectible        1%                      3%                    10%                         50%

What balance should the Allowance for Bad Debts have?

Suppose the estimated % uncollectible is based on 2015-2019 data, but that the economy for 2020 is substantially worse. Would you change your estimated Allowance for Bad Debts? If you would change, how would you change it?

Answer 1