Question

At the beginning of the year, Tennyson Auto Parts had an accounts receivable balance of $31,800 and a balance in the allowance for doubtful accounts of $2,980 (credit). During the year, Tennyson had credit sales of $624,300, collected accounts receivable in the amount of $602,700, wrote off $18,600 of accounts receivable, and had the following data for accounts receivable at the end of the period: Accounts Receivable Age Amount Proportion Expected to Default Current $22,400 0.01 1–15 days past due 5,300 0.02 16–45 days past due 3,100 0.08 46–90 days past due 3,600 0.15 Over 90 days past due 2,400 0.30 $36,800 Required: 1. Determine the desired postadjustment balance in allowance for doubtful accounts. $ 2. Determine the balance in allowance for doubtful accounts before the bad debt expense adjusting entry is posted. $ 15,620 3. Compute bad debt expense. $ Feedback 1. The aging method attempts to estimate the ending balance in the Allowance for Doubtful Accounts. 2. Using T-accounts, start with the balance at the beginning of the year, make the necessary debits and/or credits for the transactions that occurred during the year, and calculate the necessary write-offs to achieve the appropriate ending balance. 3. The aging method attempts to estimate the ending balance in the Allowance for Doubtful Accounts. 4. Prepare the adjusting entry to record bad debt expense. Bad Debt Expense Allowance for Doubtful Accounts Record adjusting entry for bad debt expense estimate Feedback 4. The aging method attempts to estimate the ending balance in the Allowance for Doubtful Accounts. Feedback Partially correct

Answer 1

1	Desired post-adjustment balance:
	Age		Accounts receivable	Propotion expected to default	Estimated Allowance balance
			a	b	a*b
	Current		22400	0.01	224
	1-15 days		5300	0.02	106
	16-45 days		3100	0.08	248
	46-90 days		3600	0.15	540
	Over 90 days		2400	0.3	720
	Total				1838
	Desired post adjustment balance= $ 1838 (credit)
2	Only transaction that affects other than baddebt expense is the write off of $ 18600.
	Entry would be
					Debit	Credit
	Allowance for doubtful accounts				18600
	Accounts receivable					18600
	T-accounts:		Allowance for doubtful accounts
	Particulars			Debit	Particulars			Credit
					Bal.			2980
	Accounts receivable			18600
				18600				2980
	Bal.			15620
3	Current balance in allowance for doubtful accounts=$ 15620 (Debit)
	Desired post adjustment balance= $ 1838 (credit)
	Hence, Baddebt expense=15620+1838=$ 17458
4	Adjusting entry:
					Debit	Credit
	Baddebt expense				17458
	Allowance for doubtful accounts					17458