Adventure Company Uses the Aging of Accounts Receivable Method to Estimate

question 119

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.Based on experience,management has estimated what portion of receivables of a specific age will not be paid as follows: (1)1%,(2)15%,and (3)40%,respectively.
At December 31,2016,the unadjusted credit balance in the Allowance for Doubtful Accounts was $100.The total Accounts Receivable in each age 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.
Required:
Part a.Calculate the estimate of uncollectible accounts at December 31,2016.
Part b.Prepare the appropriate adjusting entry dated December 31,2016.

---

Definitions:

Selection Within Markets

The strategy of selecting specific securities for investment within a particular market or sector to optimize returns.

Abnormal Return

Abnormal return is the difference between the actual return of a security and its expected return, based on risk and market performance, indicating performance indicative of events or conditions unique to that security.

Bonds

A type of fixed-income investment where an investor loans money to an entity (corporate or governmental) which borrows the funds for a defined period at a variable or fixed interest rate.

Asset Allocation

The strategy of distributing investments among various classes of assets to manage risk and enhance returns.