Adventure Company uses the aging of accounts receivable method to estimate bad d

Question

Adventure Company uses the aging of accounts receivable method to estimate bad debt expense. The talance of each account receivable is aged on the basis of three categories as folows: (1) 1-30 days old, 2) 30-90 days old, and (3) more than 90 days old. Experience has shown that for each age group, the iverage loss rate on the amount of the receivable due to uncolectiblty is (1)1%, (2) 15%, and (3) 40%, espectively. At December 31, 2014, the unadjusted balance in the Alowance for Doubtful Accounts was 5100 (credit), and the total amounts receivable in each category were: (1) 1-30 days old, $65,000, (2) 30-90 jays old, $10,000, and (3) more than 90 days old, $4,000 Calculate the balance that should be reported in the Alowance for Doubtful Accounts at December 31, 2014 Prepare the appropriate bad debt expense adjusting entry at December 31, 2014.

Explanation / Answer

3750

Adjustment Entry

Credit balance is allowances for doubtful debts = 100

Adjustment Entry:

Bad debt    debit                      3650

credit allowance for doubtful debts    3650

balance % of uncollectable amount Amount 65000 1% 650 10000 15% 1500 4000 40% 1600 total amount to be uncollectible

3750

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