Question

Accounting for Receivables.

The following information is provided about the outstanding Accounts Receivable of the Dr. Doofenshmirtz Corporation. They total $120,000. Of these, $60,000 have been outstanding 0-30 days, $40,000 have been outstanding 31-60 days, and $20,000 have been outstanding for more than 60 days. Of the 0-30 day category, 6% are expected to be uncollectible, of the 31-60 day category, 8% are expected to be uncollectible, and of the over-60-day group, 20% are expected to be uncollectible.

2) Now Doofenshmirtz Corporation needs to make the adjusting entry to record the uncollectible.

a) Make the journal entry on the assumption that the unadjusted balance in the Allowance for Uncollectible Accounts is a $400 credit balance.

b) Now make the entry on the assumption that the unadjusted balance in the Allowance for Uncollectible Accounts is a $280 debit balance.

Answer 1

2	Ageing schedule:
				Accounts receivable	% uncollectible	Uncollectible amount
				a	b	a*b
	0-30 days			60000	6%	3600
	31-60 days			40000	8%	3200
	> 60 days			20000	20%	4000
	Total			120000		10800
	Total estimated uncollectible amount=$ 10800
a.	Desired ending balance in allowance for uncollectible accounts=$ 10800
	Current balance in allowance for doubtful accounts=$ 400 credit
	Hence,bad debt expense to be recognized=10800-400=$ 10400
	Journal entry:
	Account titles and explanation				Debit	Credit
	Bad debt expense				10400
	Allowance for uncollectible accounts					10400
b.	Desired ending balance in allowance for uncollectible accounts=$ 10800
	Current balance in allowance for doubtful accounts=$ 280 credit
	Hence,bad debt expense to be recognized=10800+280=$ 11080
	Journal entry:
	Account titles and explanation				Debit	Credit
	Bad debt expense				11080
	Allowance for uncollectible accounts					11080