Adjustment entries for bad debts and how accounts receivable shown in balance sheet.
Arias Company uses the aging approach to estimate bad debt expense. The balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due $60,000, (2) up to 180 days past due $12,000, and (3) more than 180 days past due $4000. Experience has shown that for each age group the average loss rate on the amount of the receivables at year end due to non collectability is (1) 3 percent, (2) 15 percent and (3) 35 percent. At December 31, 2011(end of the current year) the Allowance for Doubtful Accounts balance was $200 (credit) before the end of period adjusting entry is made.
Required:
1) Prepare the appropriate bad debt expense adjusting entry for the year 2011.
2) Show how the various accounts related to accounts receivable should be shown on the December 31, 2011 balance sheet.