Ghosh Company has credit sales of $2.8 million for year 2009. On December 31, 2009, the company's allowance for Doubtful Accounts has an unadjusted credit balance of $22,800. Ghosh prepares a schedule of its December 31, 2009, accounts receivable by age. On the basis of past experience, it estimates the percent of receivables in each category that will become uncollectible. This information is summarized here.
December 31, 2009
Accounts Receivable Age ofAccounts Receivable Expected Percent Uncollectible
$784,000 Not yet due 1.25%
380,200 1 to 30 days past due 2.00
81,800 31 to 60 days past due 6.50
52,000 61 to 90 days past due 32.75
13,000 Over 90 days past due 68.00
Required
1. Estimate the required balance of the allowance for Doubtful Accounts at December 31, 2009, using the aging of accounts receivable method.
2. Prepare the adjusting entry to record bad debts expense at December 31, 2009. Analysis Component
3. On June 30, 2010, Ghosh Company concludes that a customer's $4,750 receivable is uncollectible and that the account should be written off. What effect will this action have on Ghosh's 2010 net income? Explain.