A company uses the aging of accounts receivable method to estimate its bad debts expense. On December 31 of the current year an aging analysis of accounts receivable revealed the following:
Accounts Estimated
Receivable Account Age Uncollectible
$620,000 Not due yet………….. 1%
270,000 1-30 days overdue….. 2%
145,000 31-60 days overdue. 8%
55,000 61-90 days overdue…. 20%
32,000 91-120 days overdue... 50%
18,000 Over 120 days overdue 70%
$1,140,000 Total
Required:
a. Calculate the amount of the Allowance for Doubtful Accounts that should be reported on the current year-end balance sheet.
b. Calculate the amount of the Bad Debts Expense that should be reported on the current year’s income statement, assuming that the balance of the Allowance for Doubtful Accounts on January 1 of the current year was $44,000 and that accounts receivable written off during the current year totaled $42,000.