Question

1. Thomsen Company has the following unadjusted account balances at December 31, 2018. Accounts Receivable of $185,700 and Allowance for Doubtful Accounts of $1,600 (debit balance). Also, Thomsen has just determined that $1,600 of $3,200 balance that is over 90 days past due will not be collected. This company uses the aging of accounts receivable to estimate its bad debts. The following aging schedule reflects its accounts receivable at the year-end:

Account Age	Age Group Balance	Estimated Uncollectible Percentage
Current (not yet due)	$96,000	1.5%
1-30 days past due	64,000	4.0
31-60 days past due	16,000	10.0
61-90 days past due	6,400	40.0
Over 90 days past due	3,200	65.0
Total	$185,600

Required:

1. Record if necessary an entry for the $1,600 deemed uncollectible.
2. Calculate the net receivable that should appear on the December 31, 2018 balance sheet.
3. Prepare the adjusting journal entry to record bad debts expense for December 31, 2018.

Answer 1

Calculate Target Balance for Allowance Account:-

Age Group Balance	Estimated Uncollectible Percentage
Current (not yet due)	$96,000	1.5%	($96000 * 1.5%) =$1440
1-30 days past due	64,000	4.0	($64000 * 4%) =$2560
31-60 days past due	16,000	10.0	($16000 * 10%) =$1600
61-90 days past due	6,400	40.0	($6400*40%) =$2560
Over 90 days past due	3,200	65.0	($3200 * 65%) =$2080
Total	$185,600

$1440 + $2560 + $1600 + $2560 + $2080 = $10240

Calculation of Bad Debt Expense = Desired balance in allowance account (Credit) + Current balance in allowance account (debit)

= $10240 + $1600 = $11840

Journal Entry for Bad Debt :-

Bad Debt Expense - Dr $11840

Allowance for Doubtful Accounts Cr $11840