Credit Losses Based on Accounts Receivable At December 31, Rinehart Company had
ID: 2393043 • Letter: C
Question
Credit Losses Based on Accounts Receivable At December 31, Rinehart Company had a balance of $314,900 in its Accounts Receivable account and a credit balance of $2,800 in the Allowance for Doubtful Accounts account. The accounts receivable T-account consisted of $321,000 in debit balances and $6,100 in credit balances. The company aged its accounts as follows:
In the past, the company has experienced credit losses as follows: 2% of current balances, 6% of balances 0-60 days past due, 15% of balances 61-180 days past due, and 30% of balances over six months past due. The company bases its allowance for doubtful accounts on an aging analysis of accounts receivable.
Required
a.Prepare the adjusting entry to record the allowance for doubtful accounts for the year.
b. Show how Accounts Receivable (including the credit balances) and the Allowance for Doubtful Accounts would appear on the December 31 balance sheet.
a.
b.
Explanation / Answer
Rate of allowance Allowance Required Current $266,000 2% $ 5,320 0-60 days past due 32,000 6% 1,920 61-180 days past due 14,200 15% 2,130 Over 180 days past due 8,800 30% 2,640 Total $321,000 $ 12,010 Less: Credit balance in allowance account 2,800 Adjustment Amount for bad debt expense 9,210 a General Journal Date Description Debit Credit Dec.31 Bad Debts Expense $ 9,210 Allowance for Doubtful Accounts $ 9,210 To record allowance for credit losses. b Current Assets: Accounts Receivable $ 321,000 Less: Allowance for Doubtful Accounts $ (12,010) Accounts Receivable (Net) $ 308,990 Current Liabilities: Customers' Overpayments $ 6,100
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