Question

Credit Losses Based on Accounts Receivable At December 31, Rinehart Company had a balance of $314,900 in its Accounts Receivable account and a credit balance of $2,800 in the Allowance for Doubtful Accounts account. The accounts receivable T-account consisted of $321,000 in debit balances and $6,100 in credit balances. The company aged its accounts as follows:

Current	$266,000
0-60 days past due	32,000
61-180 days past due	14,200
Over 180 days past due	8,800
	$321,000

In the past, the company has experienced credit losses as follows: 2% of current balances, 6% of balances 0-60 days past due, 15% of balances 61-180 days past due, and 30% of balances over six months past due. The company bases its allowance for doubtful accounts on an aging analysis of accounts receivable.

Required
a.Prepare the adjusting entry to record the allowance for doubtful accounts for the year.
b. Show how Accounts Receivable (including the credit balances) and the Allowance for Doubtful Accounts would appear on the December 31 balance sheet.

a.

General Journal
Date	Description	Debit	Credit
Dec.31	Bad Debts Expense	?	?
	Allowance for Doubtful Accounts	?	?
	To record allowance for credit losses.

b.

	Current Assets:
	Accounts Receivable		?
	Less: Allowance for Doubtful Accounts		?
			?
	Current Liabilities:
	Customers' Overpayments		?

Answer 1

				Rate of allowance	Allowance Required
		Current	$266,000	2%	$                  5,320
		0-60 days past due	32,000	6%	1,920
		61-180 days past due	14,200	15%	2,130
		Over 180 days past due	8,800	30%	2,640
		Total	$321,000		$                12,010
		Less: Credit balance in allowance account			2,800
		Adjustment Amount for bad debt expense			9,210
a	General Journal
	Date	Description	Debit	Credit
	Dec.31	Bad Debts Expense	$      9,210
		Allowance for Doubtful Accounts		$               9,210
		To record allowance for credit losses.
b		Current Assets:
		Accounts Receivable	$ 321,000
		Less: Allowance for Doubtful Accounts	$   (12,010)
		Accounts Receivable (Net)		$           308,990
		Current Liabilities:
		Customers' Overpayments		$               6,100