Question : Moonglow, a Broadway Publicity firm, uses the balance sheet approach to estimate uncollectible accounts expense. At year-end an aging of the accounts receivable produced the following classification: Not yet due $400,000 1-30 days past due 150,000 31-60 days past due 60,000 61-90 days past due 20,000 Over 90 days past due 50,000 Total $680,000
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Question : Moonglow, a Broadway Publicity firm, uses the balance sheet approach to estimate uncollectible accounts expense. At year-end an aging of the
Not yet due $400,000
1-30 days past due 150,000
31-60 days past due 60,000
61-90 days past due 20,000
Over 90 days past due 50,000
Total $680,000
On the basis of past experience, the company estimated the percentages probably uncollectible for the above five age groups to be as follows: Group 1, 1%; Group 2, 4%; Group 3, 10%; Group 4, 25%; and Group 5, 40%
The Allowance for Doubtful Accounts before adjustments at December 31 showed a credit balance of $6,600.
Instructions
a. Compute the estimated amount of uncollectible accounts based on the above classification by age groups.
b. Prepare the
c. Assume that on January 15 of the following year, Moonglow learned that an account receivable that had originated on September 1 in the amount of $2,400 was worthless because of the bankruptcy of the client, May Flowers. Prepare the
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