Question

At the end of Year 5, your consulting firm has been hired by a local service firm to help forecast future uncollectible accounts. For each of the prior five years, you ask the service firm to provide data on the age categories of year-end accounts receivable and the percentage of those accounts that eventually proved uncollectible. With these historical percentages, you estimate a trend line (dashed line) to predict the percentage of uncollectible accounts for Year 6, the upcoming year. Graphs were provided to management from your analysis of each of the three age categories, as well as balances of accounts receivable by age category at the end of Year 5 as follows: 

Required:

 1. Which age categories predicts the lowest percentage of uncollectible accounts for Year 6?

 2. Which age categories predicts the highest percentage of uncollectible accounts for Year 6?

 3. What is the dollar amount of accounts receivable that are 1-30 days past due at the end of year 5 (bottom graph)?

 4. Calculate the total amount of estimated uncollectible accounts for Year 6 (Hint: Use all three age categories)?

 5. Assume the balance of Allowance for Uncollectible Accounts is $4,850 (credit) at the end of Year 5 (before any adjustment). Prepare the adjusting entry at the end of Year 5.

 6. Determine the amount of net accounts receivable the company would report at the end of Year 5. 

Answer 1

1)

	Year 6
Not yet past due	6%
1-30 past due	15%
Over 30days past due	43%

For year 6 ,The Lowest percentage of Uncollectible accounts are "Not yet past due " which is 6%     (from all first three graphs)

2)For year 6 ,The Highest percentage of Uncollectible accounts are "over 30 days past due " which is 43%     (from all first three graphs)

3)Dollar Amount of Accounts receivable that are 1-30 days past due = $ 84000

4)

	Amount of Receivable	*	% OF uncollectible account	=	Total amount of estimated Uncollectible accounts for year6
Not yet past due	128000		6%		7680
1-30 past due	84000		15%		12600
Over 30days past due	35000		43%		15050
Total amount of estimated Uncollectible accounts for year 6					35330

5)

Date	Account title	Debit	credit
Year 5	Bad debt expense	30480
	Allowance for Uncollectible account		30480
	[Being bad debt expense recorded :35330 Total estimated Uncollectible account -4850 credit balance in allowance account )

6)

Accounts Receivable (128000+84000+35000)	247000
less:Allowance for Uncollectible account	(35330)
Net Accounts receivable at year 5		211670

Answer 2

1	Not yet past due (6%)
2	Over 30 days past due (43%)
3	$84,000
4	Age		Accounts receivable	% uncollectible in year 5	Amount uncollectible
			a	b	a*b
	Not yet past due		128000	5%	6400
	1-30 days past due		84000	14%	11760
	Over 30 days past due		35000	42%	14700
	Total		247000		32860
5	Unadjusted balance in allowance for uncollectible accounts=$ 4850
	Estimated unollectible accounts=$ 32860
	Uncollectible expenses=32860-4850=$ 28010
	Adjusting entry:
	Account titles and explanation					Debit	Credit
	Uncollectible expense					28010
	Allowance for uncollectible accounts						28010
	(Allowance made)
6	Net accounts receivable=Total accounts receivable-Allowance for uncollectible accounts=247000-32860=$ 214140

Answer 3

1) Not yet past due (6%)

2) Over 30 days past due (43%)

3) 84,000

4) 35,330

5) Debit Bad Debt Expense (30,840), Credit Allowance for Uncollectible Accounts (30,840)

6) 211,670