Exercise 7-7 Percent of receivables method L.O. P2 Hecter Company estimates unco

Question

Exercise 7-7 Percent of receivables method L.O. P2

Hecter Company estimates uncollectible accounts using the allowance method at December 31. It prepared the following aging of receivables analysis.

Estimate the balance of the Allowance for Doubtful Accounts assuming the company uses 3.5% of total accounts receivable to estimate uncollectibles, instead of the aging of receivables method. (Omit the "$" sign in your response.)

Prepare the adjusting entry to record Bad Debts Expense using the estimate from part a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $300 credit. (Omit the "$" sign in your response.)

Prepare the adjusting entry to record Bad Debts Expense using the estimate from part a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $200 debit. (Omit the "$" sign in your response.)

Exercise 7-8 Writing off receivables L.O. P2

Hecter Company estimates uncollectible accounts using the allowance method at December 31. It prepared the following aging of receivables analysis.

On February 1 of the next period, the company determined that $1,900 in customer accounts is uncollectible; specifically, $400 for Oxford Co. and $1,500 for Brookes Co. Prepare the journal entry to write off those accounts. (Omit the "$" sign in your response.)

On June 5 of that next period, the company unexpectedly received a $400 payment on a customer account, Oxford Company, that had previously been written off in part a. Prepare the entries necessary to reinstate the account and to record the cash received. (Omit the "$" sign in your response.)

Hecter Company estimates uncollectible accounts using the allowance method at December 31. It prepared the following aging of receivables analysis.

Explanation / Answer

Answe:

Accounts receivable
Total--$190,000
0--$132,000 x 1% = 1,320
1 to 30--$30,000 x 2% = 600
31 to 60--$12,000 x 4% = 480
61 to 90--$6,000 x 7% = 420
over 90--$10,000 x 12% = 1,200
Total = 4,020

a. Estimate the balance of the Allowance forDoubtful Accountsusing the aging of accounts receivable method.
4,020

b. Prepare the adjusting entry to record Bad Debts Expense using the estimate from part a. Assume the unadjusted balance in theAllowance for Doubtful Accountsis a $600 credit.
Using receivables as a basis for estimating bad debt expense, the CREDIT balance in the Allowance account AFTER the adjustment must equal the amount estimated to be uncollectible.
The Allowance account already has a credit balance of 600, the entry would be 4,020 - 600 = 3,420.
Dr Bad Debt Expense 3,420
Cr Allowance for Doubtful Accounts 3,420
The Allowance account now has a credit balance of 4,020, the amount that is estimated to be uncollectible.

c. Prepare the adjusting entry to record Bad Debts Expense using the estimate form part a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $400 debit.
Same as above, except the Allowance account is starting with a DEBIT balance of 400. So the adjustment would be 4,020 + 400 = 4,420
Dr Bad Debt Expense 4,420
Cr Allowance for Doubtful Accounts 4,420
The Allowance account now has a credit balance of 4,020.

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