A Company Uses the Aging of Accounts Receivable Method to Estimate

question 67

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:
$$\begin{array} { | r | l | c | } \hline \begin{array} { c } \text { Accounts } \\\text { Receivable }\end{array} & { \text { Account Age } } & \begin{array} { c } \text { Estimated } \\\text { Uncollectible }\end{array} \\\hline \$ 620,000 & \text { Not due yet } & 0.5 \% \\\hline 270,000 & 1 - 30 \text { days overdue } & 2.0 \\\hline 145,000 & 31 - 60 \text { days overdue } & 8.0 \\\hline 55,000 & 61 - 90 \text { days overdue } & 20.0 \\\hline 32,000 & 91 - 120 \text { days overdue } & 50.0 \\\hline \underline { 18,000 } & \text { Over } 120 \text { days overdue } & 70.0 \\\hline \$ 1,140,000 & \text { Total } & \\\hline\end{array}$$
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 $44,000 and that accounts receivable written off during the current year totaled $49,200
c. Prepare the adjusting journal 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

Recognize the efficiency comparison between the private and public sectors.

Identify factors contributing to government failures such as rent-seeking behavior and special-interest effects.

Understand the concept of logrolling and its impact on government decisions.

Recognize the implications of the principal-agent problem in politics.

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Definitions:

Short Run

A time period in economics during which at least one input in the production process is fixed, affecting production capabilities.

Price of Capital

The cost of using capital assets to produce goods or services, often expressed in terms of interest rates or rental rates on capital equipment.

Total Cost

The complete expenditure incurred by a firm in the production of goods or services, including both fixed and variable costs.

Production Technique

Methods and processes used in the conversion of inputs into outputs in the production of goods or services.