Your Company Has $3,000,000 in Credit Sales During 2011

question 16

Essay

Your company has $3,000,000 in credit sales during 2011. The beginning balance of the allowance for doubtful accounts is $3,000 and the company writes off $700 in bad debts during the year.
a. Calculate the estimated doubtful accounts using the aging of accounts receivable method given that
$1,600,000 of the credit sales are not yet due (estimated that 0.5% are uncollectible), $349,000 are 1-60 days
late (estimated that 1.25% are uncollectible) and $12,000 are over 60 days late (estimated that 30% are uncollectible).
b. Using the assumptions in the initial problem statement above, and using the aging of accounts method, calculate the bad debt expense. Show your calculation in a T-account for Allowance for Bad Debts and present the journal entry to record bad debt expense.
c. Calculate the estimated bad debt expense using the percentage of credit sales method and prepare the journal
entry. Historically your company is unable to collect 1% of credit sales.

---

Definitions:

Calcium Depletion

A condition where the body has insufficient levels of calcium, which can lead to weakened bones and other health issues.

Bone Matrix

The intercellular substance of bone tissue, consisting of collagen fibers and ground substance, that gives the bone its strength and rigidity.

Osteoporosis

A condition characterized by weakened bones, increasing the risk of fractures.

Fractures

Breaks in bones, which can vary in severity from small cracks to complete breaks.