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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Entry for uncollectible accounts

Using the data in Exercise 9-11, assume that the allowance for doubtful accounts for Performance Bike Co. had a debit balance of $28,400 as of December 31.

Journalize the adjusting entry for uncollectible accounts as of December 31.

To determine

Analysis of receivables method:

A method of determining the estimated uncollectible receivables based on the age of individual accounts receivable is known as analysis of receivables method. This method is otherwise known as aging of receivables method. Under analysis of receivables method, estimated bad debts would be treated as the desired adjusted balance for allowance for doubtful accounts.

To Journalize: The adjusting entry for uncollectible as of December 31.

Explanation

Journalize the adjusting entry for uncollectible as of December 31.

Date Particulars Debit Credit
December 31 Bad debt expense $400,900  
    Allowance for doubtful accounts   $400,900
  (To adjust the uncollectible accounts)    

Table (1)

Working note:

Estimate the proper balance of the allowance for doubtful accounts as of December 31.

Age interval Balance Estimated uncollectible accounts
Percent Amount
Not past due $3,250,000 0.8% $26,000
1-30 days past due $1,050,000 2.4% $25,200
31-60 days past due $780,000 7.0% $54,600
61-90 days past due $320,000 18.0% $57,600
91-180 days past due $240,000 34.0% $81,600
Over 180 days past due $150,000 85.0% $127,500
Total $5,790,000 $372,500

Table (2)

The aging of accounts receivable indicates that the total estimated allowance for doubtful accounts as of December 31 is $372,500...

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