Response to the following problem:
Wright Products Company was founded in early 2010. Wrightoffers credit terms (net 30 days) to all of its customers. As Wrighthas been required to write-off several customer accounts, Wrightuses the allowance method to provide for uncollectible receivables. During 2018, Wright provided for uncollectible accounts receivable with a monthly provision of 1% of credit sales. However, at year-end, an aging of accounts receivable is prepared and the allowance for uncollectible accounts is adjusted based on an analysis of the aging. At December 31, 2017, the adjusted balance of the allowance for uncollectible accounts was $21,500, and the balance of accounts receivable was $156,500.
During 2018, Wrightwrote-off $19,000 of customer accounts that were deemed to be uncollectible, due to customers declaring bankruptcy or experiencing financial difficulties so severe that extensive collection efforts were not successful. One customer's account with a $2,500 balance, which had been written-off in June 2016, was subsequently collected from the customer in April 2018. Wrightmaintained the same monthly provision of 1% of credit sales throughout 2018. Monthly sales for 2018 are as follows:
January $ 43,500
February 56,000
March 62,600
April 49,200
May 53,800
June 46,500
July 72,400
August 57,400
September 81,000
October 65,800
November 49,200
December 62,600
Total cash collections of accounts receivable during 2018 (not including the collection of the previously written-off account) were $667,500.
In preparation for its year-end closing process, Wright's controller prepared the following aging of accounts receivable as of December 31, 2018, assigning probabilities of collection based on discussions with Wright's credit manager:
Percentage of
Age of Account Receivable Accounts Receivable Probability of Collection
0-30 days past due 70% 95%
31-60 days past due 15% 80%
61-90 days past due 9% 60%
greater than 90 days past due 6% 10%
Requirements:
a) Prepare an analysis computing the unadjusted balance in the allowance for uncollectible accounts as of 12/31/18.
b) Prepare the year-end adjusting journal entry to record bad debt expense based on the December 31, 2018 aging of accounts receivable.