Question

EXERCISE 2

Brown Company had a $1,000 credit balance in Allowance for Doubtful Accounts at December 31, 2020, before the current year's provision for uncollectible accounts. An aging of the accounts receivable revealed the following:

              Estimated Percentage                              Uncollectible                  

Current Accounts                                                         $100,000                               1%                                    

1–30 days past due                                                         12,000                               3%                                         

31–60 days past due                                                        10,000                               6%                                        

61–90 days past due                                                         6,000                             25%                                     

Over 90 days past due                                                      8,000                             50%                                    

                                                         Total Accounts Receivable    $136,000                         

Instructions:                                                                            

(a)   Prepare the adjusting entry on December 31, 2020, to recognize bad debts expense.

(b)   Assume the same facts as above except that the Allowance for Doubtful Accounts account had a $460 debit balance before the current year's provision for uncollectible accounts. Prepare the adjusting entry for the current year's provision for uncollectible accounts.

Answer 1

a) Schedule

Days	Amount	% Uncollectible	$ Uncollectible
Current accounts	100000	1%	1000
0-30 days past due	12000	3%	360
31-60 days past due	10000	6%	600
61-90 days past due	6000	25%	1500
Over 90 days past due	8000	50%	4000
Total	136000		7460

a) Adjusting entry

Date	account and explanation	Debit	Credit
	Bad debt expense (7460-1000)	6460
	Allowance for doubtful accounts		6460

b) Adjusting entry

Date	account and explanation	Debit	Credit
	Bad debt expense (7460+460)	7920
	Allowance for doubtful accounts		7920