Question

Midwest Wholesalers, Inc. prepared the following aging of their accounts receivable at year end, showing the number of days outstanding.

	0-30	31-60	61-90	91-120	OVER 120	Total
Accts. Receivable	220,000	90,000	40,000	15,000	10,000	$375,000
% Uncollectible	1%	4%	5%	8%	10%	NA

1. Calculate the total estimated bad debt based on the above information.
2. Prepare the year end adjusting journal entry to record bad debt, assuming that the unadjusted balance in the Allowance for Doubtful Accounts is $2,650 (credit).
3. Prepare the year end adjusting journal entry to record bad debt, assuming that the unadjusted balance in the Allowance for Doubtful Accounts is $1,750 (debit).

Answer 1

Solution :

(a) Estimated Bad Debt :

Number of Days Outstanding	Accounts Receivable	Estimated Percentage Uncollectible	Estimated Uncollectible Accounts
0-30 days	$ 220,000	1%	$ 2,200
31-60 days	$ 90,000	4%	$ 3,600
61-90 days	$ 40,000	5%	$ 2,000
90- 120 days	$ 15,000	8%	$ 1,200
Over 120 days	$ 10,000	10%	$ 1,000
Total	$ 375,000		$ 10,000

(b) Journal entry when there is credit balance :

(1) Balance required in Allowance for doubtful account = $ 10,000

(2) Credit Balance Already in Account = $ 2,650

(3) Balance to be made (1 - 2) = $ 7,350   

Bad Debts Expenses	$ 7,350
Allowance for Doubtful Account		$ 7,350
(To record the bad debts expenses)

(c) Journal entry when there is debit balance :

(1) Balance required in Allowance for doubtful account = $ 10,000

(2) Debit Balance in Account   = $ 1,750

(3) Balance to be made (1 + 2)        = $ 11,750   

Bad Debts Expenses	$ 11,750
Allowance for Doubtful Account		$ 11,750
(To record the bad debts expenses)

Please vote up and write your doubts in comment section. Would be glad to help you further.