Problem
The following represents selected information taken from a company's aging schedule to estimate uncollectible accounts receivable at year-end.
|
|
Total
|
Number of Days Outstanding
|
|
0-30
|
31-60
|
61-90
|
91-120
|
Over 120
|
|
Accounts receivable
|
$305,000
|
$107,000
|
$60,000
|
$50,000
|
$38,000
|
$50,000
|
|
% uncollectible
|
|
2%
|
5%
|
7.5%
|
10%
|
25%
|
|
Estimated bad debts
|
|
2140
|
3000
|
3750
|
3800
|
12,500
|
Net Realizable Value = 279,810.
Instructions
a) Calculate the total estimated bad tlebts based on the above information.
b) Prepare the year-end adjusting journal entry to record the bad debts using the allowance method and the aged uncollectible accounts receivable determined in (a). Assume the unadjusted balance in Allowance for Doubtful Accounts is a $7,000 credit.
c) Of the above accounts, $2,600 is determined to be specifically uncollectible. Prepare the journal entry to write off the uncollectible accounts.
d) The company subsequently collects $1,200 on a specific account that had previously been determined to be uncollectible in (c). Prepare the journal entry(ies) necessary to restore the account and record the cash collection.
e) Explain how establishing an allowance account satisfies the expense recognition principle.