Prepare the adjusting entry to recognise bad debt expense.
The Montgomery Burns Company had a $700 credit balance in Allowance for Doubtful Accounts at December 31, 2001, before the current years (2001) provision for uncollectible accounts. An aging of the accounts receivable revealed the following:
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Estimated Percentage Uncollectible
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Current Accounts
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$120,000
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1%
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1 -30 days past due
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12,000
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3%
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31 - 60 days past due
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10,000
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6%
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61 - 90 days past due
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5,000
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12%
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Over 90 days past due
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8,000
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30%
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Total Accounts Receivable
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$155,000
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(a) Assuming that the company uses the percentage of receivables allowance method, prepare the adjusting entry on December 31, 2001, to recognize bad debts expenses.
(b) Assume the same facts as above except that the Allowance for Doubtful Accounts account had a $500 debit balance before the current year's provision for uncollectible accounts. Again, prepare the adjusting entry on December 31, 2001, to recognize bad debts expenses.