Question - Estimating Uncollectible Accounts by Aging Receivables
Rainy Day Company, a wholesaler, uses the aging method to estimate bad debt losses. The following schedule of aged accounts receivable was prepared at December 31, 20Y6.
|
Age of Accounts
|
Amount
|
|
0-30 days
|
$478,600
|
|
31-60 days
|
172,300
|
|
61-90 days
|
79,200
|
|
91-120 days
|
21,300
|
|
Over 120 days
|
8,300
|
|
|
$759,700
|
The following schedule shows the year-end receivables balances and uncollectible accounts experience for the previous five years.
|
Year
|
Year-End Receivables
|
0-30 days
|
31-60 days
|
61-90 days
|
91-120 days
|
Over 120 Days
|
|
20Y5
|
$780,700
|
0.3%
|
0.9%
|
8.7%
|
52.1%
|
84.1%
|
|
20Y4
|
750,400
|
0.5
|
0.8
|
9.0
|
49.2
|
80.3
|
|
20Y3
|
681,400
|
0.4
|
1.1
|
9.5
|
53.7
|
82.0
|
|
20Y2
|
698,200
|
0.4
|
1.0
|
9.9
|
51.3
|
78.5
|
|
20Y1
|
723,600
|
0.2
|
1.1
|
8.9
|
49.9
|
85.2
|
The unadjusted Allowance for Bad Debts balance on December 31, 20Y6, is $30,124.
1. Compute the correct balance for the allowance account based on the average loss experience for the last five years. Round the average percentage loss values to two decimal places as you perform the intermediate calculations required to calculate the estimated uncollectible amount. Round dollar amount calculations and your final answer to the nearest dollar.
2. Prepare the appropriate end-of-year adjusting entry.