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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

Estimating allowance for doubtful accounts

Kirchhoff Industries has a past history of uncollectible accounts, as follows. Estimate the allowance for doubtful accounts, based on the aging of receivables schedule you completed in Exercise 9-8.

Age Class Percent Uncollectible
Not past due 2%
1-30 days past due 4
31-60 days past due 18
61-90 days past due 40
Over 90 days past due 75

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.

Due date:

Due date is the maturity date on note/account, on due date the borrower is supposed to pay the debt.

Past due:

Past due is the number of days of not receiving/making payment on the overdue account.

To prepare: An estimate for allowance for doubtful accounts, on the basis of aging of receivables schedule.

Explanation

Prepare an estimate for allowance for doubtful accounts.

Figure (1)

Hence, the estimated amount of allowance for doubtful accounts is $131,712.

Working note:

Calculate number of days past due for each account.

C Industries Account Past due days
Number of days from March 23 to 31 9 days
Number of days from April 1 to 31 31 days
Number of days from May 1 to 31 31 days
Number of days from June 1 to 30 30 days
Number of days from July 1 to 31 31 days
Number of days from August 1 to 31 31 days
Total 162 days

Table (1)

K Company Account Past due days
Number of days from July 2 to 31 30 days
Number of days from August 1 to 31 31 days
Total 61 days

Table (2)

MC Incorporation Account Past due days
Number of days from July 26 to 31 6 days

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