Question

McClane, Inc. provided the following aging of its receivables at December 31.

Age of Accounts	Receivables Balance	Estimated % Uncollectible
0-30 days	$420,000	0.5%
31 to 60 days	200,000	5.2%
61 to 90 days	75,000	10.3%
91 to 120 days	35,000	21.5%
Over 121 days	15,000	75.2%
Total	$745,000

During the year, $22,500 of receivables were written off. The balance at the beginning of the year in the allowance account was a credit of $25,000.

1. How much will McClane report as bad debt expense for the year?
2. How much is the net realizable value of McClane’s receivables at year end?

Answer 1

	bad debt expense for the year	36,530
	net realizable value of McClane’s receivables at year end	705,970
Step 1	Age of Accounts	Receivables Balance	Estimated % Uncollectible	Estimated Uncollecetible
	0-30 days	420,000	0.50%	2,100
	31 to 60 days	200,000	5.20%	10,400
	61 to 90 days	75,000	10.30%	7,725
	91 to 120 days	35,000	21.50%	7,525
	Over 121 days	15,000	75.20%	11,280
	Total	745,000		39,030
Step 2	Beg. Balance of allowance account	25000
	less: written off	-22500
	unadjusted balance	2500
	Ending balance required	39,030
	Bad debt expense	36,530	(39030 - 2500)
Step 3	Ending accounts receivable	745,000
	Less: allowance account	(39,030)
	Net realizable value	705,970