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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Determining Bad Debt Expense Using the Aging Method

At the beginning of the year, Lennon Electronics had an accounts receivable balance of $34,800 and a balance in the allowance for doubtful accounts of $3,640 (credit). During the year, Lennon had credit sales of $891,420, collected accounts receivable in the amount of $821,400, wrote off $28,990 of accounts receivable, and had the following data for accounts receivable at the end of the period:

Chapter 5, Problem 85BPSB, Determining Bad Debt Expense Using the Aging Method At the beginning of the year, Lennon Electronics

Required:

1. Determine the desired post adjustment balance in allowance for doubtful accounts (round amounts to nearest dollar for each aging category).

2. Determine the balance in allowance for doubtful accounts before the bad debt expense adjusting entry is posted.

3. Compute bad debt expense.

4. Prepare the adjusting entry to record bad debt expense.

To determine

(a)

Aging method:

This is a method in which the receivables are sorted according to their collectable estimation. This is done on the basis of their outstanding invoices period. Basically, aging means to check the how old an outstanding balance of receivable is present in the books.

To calculate:

The post adjustment balance in allowance for doubtful accounts.

Explanation

The Lennon Electronics accounts receivables indicate a total of $75,830 which is as follows:

Accounts Receivables
Amount ($) Proportion expected
Current 42,350 0.01
115 days past due 11,200 0.04
1645 days past due 9,600 0.09
4690 days past due 7,200 0.17
Over 90 days past due 5,480 0.30

This is given in the question

To determine

(b)

Aging method:

This is a method in which the receivables are sorted according to their collectable estimation. This is done on the basis of their outstanding invoices period. Basically, aging means to check the how old an outstanding balance of receivable is present in the books.

To calculate:

The balance in allowance for doubtful accounts before the adjustment of bad debt.

To determine

(c)

Aging method:

This is a method in which the receivables are sorted according to their collectable estimation. This is done on the basis of their outstanding invoices period. Basically, aging means to check the how old an outstanding balance of receivable is present in the books.

The computation of bad debt expense.

To determine

(d)

Aging method:

This is a method in which the receivables are sorted according to their collectable estimation. This is done on the basis of their outstanding invoices period. Basically, aging means to check the how old an outstanding balance of receivable is present in the books.

The necessary adjusting journal entry for recording the bad debt.

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