Problem 3 (10 points) Innovative Tech Inc. (ITI) uses the aging method to estima

Question

Problem 3 (10 points) Innovative Tech Inc. (ITI) uses the aging method to estimate bad debts at year-end. At its December 3 year-end, total Accounts Receivable is $84,100, aged as follows: (1) 1-30 days old, $71,000; (2) 31-90 old, $11,000; and (3) more than 90 days old, $2,100. Experience has shown that for each age group, th average rate of uncollectibility is (1) 2 percent, (2) 14 percent, and (3) 44 percent, respectively. Before end-of-year adjusting entry is made, the Allowance for Doubtful Accounts has a $283 credit balance December 31, 2016. 1. Prepare a schedule to estimate an appropriate year-end balance for the Allowance for Doubtf Accounts 2. Prepare the December 31, 2016 adjusting entry.

Explanation / Answer

Solution 1:

Solution 2:

Existing balance in allowance for doubtful accounts = $283

Bad debts expense to be recorded on 31 Dec, 2016 = $3,884 - $283 = $3,601

Computation of Ending balance of Allowance for Uncollectible Accounts Ageing Accounts Receivables % Uncollectible Required Allowance 1-30 days $71,000.00 2% $1,420.00 31-90 days $11,000.00 14% $1,540.00 Over 90 days $2,100.00 44% $924.00 Total $84,100.00 $3,884.00

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