Allowance for Doubtful Accounts
Company Nine uses the allowance method (percentage of accounts receivable) to estimate bad debts. The company had the following activities in its Allowance for Doubtful Accounts during the year 2014:
Balance 1/1/2014 $16,000 (from 2013 balance sheet)
Write offs during 2014 $20,000
Write-off recoveries for 2014 $2,000
At the end of 2014, Company Nine prepared an aging schedule to derive the following information regarding its ending accounts receivable:
Accts Rec % Uncollectible
Less than 30 days old $200,000 2%
30 to 90 days old 50,000 10%
Over 90 days old 30,000 40%
Total 280,000
1. Complete the aging schedule above to calculate the desired ending balance in the Allowance account at December 31, 2014:
2. Prepare the following journal entries for 2014:
a. Write-offs of $20,000:
b. Write-off recoveries of $2,000 (two entries)
3. Using the T-account (on the answer sheet) to analyze the allowance account activity, and to calculate the estimate for the adjusting journal entry.
4. Prepare the adjusting journal entry to record bad debt expense for 2014.
5. What balance would appear as Accounts Receivable (net) on the 2014 balance sheet?