Adventure Company Uses the Aging of Accounts Receivable Method to Estimate

question 59

Essay

Adventure Company uses the aging of accounts receivable method to estimate bad debt expense.The balance of each account receivable is aged on the basis of three categories as follows: (1)1-30 days old, (2)30-90 days old,and (3)more than 90 days old.Experience has shown that for each age group,the average loss rate on the amount of the receivable due to uncollectibility is (1)1%, (2)15%,and (3)40%,respectively.At December 31,2014,the unadjusted balance in the Allowance for Doubtful Accounts was $100 (credit),and the total amounts receivable in each category were: (1)1-30 days old,$65,000, (2)30-90 days old,$10,000,and (3)more than 90 days old,$4,000.Calculate the balance that should be reported in the Allowance for Doubtful Accounts at December 31,2014,and prepare the appropriate bad debt expense adjusting entry at December 31,2014.

---

Definitions:

Tax Revenues

Income that the government receives from taxation, which can be levied on individuals, corporations, and other legal entities.

Federal Gasoline Taxes

Taxes imposed by the federal government on the sale of gasoline.

Payroll Taxes

Government levies on employee earnings to support social insurance programs, characteristically deducted from a worker's paycheck.

Social Security

A government program designed to provide financial assistance to retirees, disabled individuals, and survivors of deceased workers, funded through payroll taxes.