A Company Uses the Aging of Accounts Receivable Method to Estimate

question 234

Essay

A company uses the aging of accounts receivable method to estimate its bad debts expense.On December 31 of the current year an aging analysis of accounts receivable revealed the following:
$$\begin{array} { l l l } & & \begin{array} { l } \text { Estimated } \\\text { Uncollectible }\end{array} \\\text { Account Age } & \text { Balance } & \text { Percentage } \\\hline\text { Current (not yet due) } & \$ 620,000 & 0.5 \% \\1 - 30 \text { days past due } & 270,000 & 2.0 \% \\\text { 30-60 days past due } & 145,000 & 8.0 \% \\61 - 90 \text { days past due } & 55,000 & 20.0 \% \\90 - 120 \text { days past due } & 32,000 & 50.0 \% \\\text { Over 120 days past due } & \underline { 18,000 } & 70.0 \% \\\text { Total } & \$ 1,140,000 &\end{array}$$
Required:
a.Calculate the amount of the Allowance for Doubtful Accounts that should be reported on the current year-end balance sheet.
b.Calculate the amount of the Bad Debts Expense that should be reported on the current year's income statement,assuming that the balance of the Allowance for Doubtful Accounts on January 1 of the current year was $41,000 and that accounts receivable written off during the current year totaled $43,200.
c.Prepare the adjusting entry to record bad debts expense on December 31 of the current year.
d.Show how Accounts Receivable will appear on the current year-end balance sheet as of December 31.

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Definitions:

Survival of the Fittest

A concept from evolutionary theory suggesting that organisms best adapted to their environment are more likely to survive and reproduce.

Gene Pool

The complete set of unique alleles within an interbreeding population, representing the genetic diversity of that group.

Physical Fitness

A state of health and well-being achieved through regular exercise, proper nutrition, and sufficient rest, enabling an individual to carry out daily tasks with vigor and alertness.

Reproductive Success

A measure of an organism's ability to pass on its genes to the next generation, often through the number and quality of offspring produced.