4.Morse Company uses the aging method to estimate bad debts. At the end of 2014,
ID: 2419514 • Letter: 4
Question
4.Morse Company uses the aging method to estimate bad debts. At the end of 2014, the allowance for doubtful accounts has a credit balance of $2,400 before write-offs and adjustments. Morse evaluates its past due accounts and decides to write off $4,000 of accounts receivable.
Morse then prepares the following aging schedule as of December 31, 2014. Note that the accounts written off are not included in the aging schedule.
Category
Amount
% Uncollectible
Not past due
$140,000
2%
1 – 45 days
30,000
6%
Beyond 45 days past due
10,000
25%
a.After recording bad debt expense, what is the final balance in the allowance for doubtful accounts at December 31, 2014?
b.What effect will bad debts have on Morse’s reported net income for the period ended December 31, 2014? You may ignore income tax effects.
c.What amount of accounts receivable should Morse report on its December 31, 2014 balance sheet?
Category
Amount
% Uncollectible
Not past due
$140,000
2%
1 – 45 days
30,000
6%
Beyond 45 days past due
10,000
25%
Explanation / Answer
Journal entry
Now total bad allowance needed is for $7,100
so ( 2400 - 4000 written off + 8,700 = $7,100)
a)
c) A/c recievable $180,000
less:Allowance for debts (7,100)
Balance $172,900
Allowance for doubtful debts $4,000 To Accounts receivable $4,000Related Questions
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