In: Accounting
Estimating Bad Debts Expense and Reporting Receivables At December 31, Barber Company had a balance of $294,000 in its accounts receivable and an unused balance of $1,820 in its allowance for uncollectible accounts. The company then aged its accounts as follows.
Current$242,200
1–60 days past due33,600
61–180 days past due11,900
Over 180 days past due6,300
Total accounts receivable$294,000
The company has experienced losses as follows: 1% of current
balances, 5% of balances 1–60 days past due, 15% of balances 61–180
days past due, and 40% of balances over 180 days past due. The
company continues to base its allowance for uncollectible accounts
on this aging analysis and percentages.
a. What amount of bad debts expense does Barber report on
its income statement for the year? $Answer
b. Show how Barber’s December 31 balance sheet will report
the accounts receivable and the allowance for uncollectible
accounts.
Note: Round your answers to the nearest whole
dollar.
Note: Do not use a negative sign with your
answers.
Current Assets | ||
---|---|---|
Accounts receivable | Answer | |
Less allowance for uncollectible accounts | Answer | Answer |
a. Amount of bad debts expense Barber should report on its income statement for the year = $6,587
b. Barber’s December 31 balance sheet will report the accounts receivable and the allowance for uncollectible accounts in the following manner:
Current Assets
Accounts Receivable = $294,000
Less: Allowance for uncollectible accounts -$8,407
Net Realizable Value = $285,593
Workings
The amount of uncolletible accounts will be calculated in the following manner:
a. As per the above workings, the balance in Allowance for uncollectible accounts should be $8407. Since the company already has a balance of $1820, bad debts to be booked = 8407-1820 = $6,587
b. In the balance sheet the company will show amount of gross debtors less balance in Allowance for uncollectible accounts
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