Chapter 16, Problem 2CP

### College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

Chapter
Section

### College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

# At the end of 20-2, Martel Co. had $380,000 in Accounts Receivable and a debit balance of$6,000 in Allowance for Doubtful Accounts. Because it has been operating for only two years, Martel once again wants to base its estimate of uncollectible accounts on the industry average or the experience of similar companies. The industry and similar company percentages for the year were the same as in 20-1.Based on Martel Co.’s experience in 20-2, select the most appropriate basis (industry or similar company) for estimating its uncollectible accounts for 20-2. Prepare the adjusting entry on December 31, 20-2 for Martel Co.’s uncollectible accounts.

To determine

Prepare the adjusting entry to record the uncollectible accounts for M Company on December 31, 20-2.

Explanation

Allowance method:

It is a method for accounting bad debt expense, where uncollectible accounts receivables are estimated and recorded at the end of particular period. Under this method, bad debts expenses are estimated and recorded prior to the occurrence of actual bad debt, in compliance with matching principle by using the allowance for doubtful account.

Prepare the adjusting entry to record the uncollectible accounts for M Company on December 31, 20-2.

 Date Particulars Debit Credit December 31, 20-2 Bad debt expense $25,000 Â Â Â Â Allowance for doubtful accounts Â$25,000 Â (To record the estimate amount for uncollectible accounts) Â Â

Table (1)

Working note 1:

Calculate the amount of uncollectible accounts.

UncollectibleÂ accountsÂ =Â [AccountsÂ receivableÂ balanceÂ onÂ DecemebrÂ 31,Â 20-2Ã—UncollectibleÂ accountsÂ receivableÂ percentage]

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