Analysis of Receivables
Response to the following problem:
Juniper Company was formed in 1999. Sales have increased on the average of 5% per year during its first 10 years of existence, with total sales for 2008 amounting to $400,000. Since incorporation, Juniper Company has used the allowance method to account for uncollectible accounts receivable.
On January 1, 2009, the company's Allowance for Bad Debts had a credit balance of $5,000. During 2009, accounts totaling $3,500 were written off as uncollectible.
Required:
1. What does the January 1, 2009, credit balance of $5,000 in Allowance for Bad Debts represent?
2. Since Juniper Company wrote off $3,500 in uncollectible accounts receivable during 2009, was the prior year's estimate of uncollectible accounts receivable overstated?
3. Prepare journal entries to record:
a. The $3,500 write-off of receivables during 2009.
b. Juniper Company's 2009 bad debt expense, assuming an aging of the December 31, 2009, accounts receivable indicates that potential uncollectible accounts at year-end total $9,000.