Question

Entry for Uncollectible Accounts

Easy Rider International is a wholesaler of motorcycle supplies. An aging of the company's accounts receivable on December 31, 20Y3, and a historical analysis of the percentage of uncollectible accounts in each age category are as follows:

Age Interval

Balance

Percent

Uncollectible

Not past due

$1,850,000

1

%

1–30 days past due

750,000

2

31–60 days past due

100,000

6

61–90 days past due

60,000

14

91–180 days past due

45,000

60

Over 180 days past due

25,000

90

$2,830,000

Assume that the allowance for doubtful accounts for Easy Rider International had a negative balance of $(13,300) as of December 31, 20Y3.

Illustrate the effects of the adjustment for uncollectible accounts as of December 31, 20Y3, on the accounts and financial statements.

If no account or activity is affected, select "No effect" from the dropdown list and leave the corresponding number entry box blank. Enter account decreases and cash outflows as negative amounts.

Statement of Cash Flows

Balance Sheet

Assets

=

Liabilities

+

Stockholders' Equity

+

=

+

Dec. 31.

Statement of Cash Flows

Income Statement

Answer 1

Solution :

Computation of estimated uncollectibles - Easy rider
Ageing	Accounts receivables	% Uncollectible	Estimated uncollectibles
Current	$1,850,000.00	1%	$18,500.00
1-30 days	$750,000.00	2%	$15,000.00
31-60 days	$100,000.00	6%	$6,000.00
61-90 days	$60,000.00	14%	$8,400.00
91-180 days	$45,000.00	60%	$27,000.00
Over 180 days	$25,000.00	90%	$22,500.00
	$2,830,000.00		$97,400.00

Balance in allowance for uncollectible accounts = ($13,300)

Required provision of bad debts to be recorded in financial statement = $97,400 + $13,300 = $110,700

Effect on accounts and financial statements:

Statement of cash flows:

There will be no effect on statement of cash flows as bad debts expense is non cash item and does not effect cash in any way.

Balance sheet:

Assets = -$110,700

=

Liabilities = No effect

+

Stockholder's Equity = -$110,700

Income Statement:

Bad debts expense = $110,700