E Menu Credit Losses Based on Accounts Recelvable At December 31, Rinehart Compa

Question

E Menu Credit Losses Based on Accounts Recelvable At December 31, Rinehart Company had a balance of $307 900 in its Accoumts Receivable account and a credit balance of $2.800 in the Allowarce for Doubtful Accounts account. The accounts recevable T- account consisted of $313.600 in debit balances and $5.700 in credit balances The compary aged its accounts as tollows 5263,000 29,000 61-180 days past due12,200 Rnish antemp 0-60 days past due Over 180 days past 3,400 In the past, the company has experienced credit losses as follows: 2% of current balances, 6% of balances 040 days past de 15% of balances 61-180 days past due, and 30% of balances over six rorths past due. The company bases its aloarce for doubtful accounts on an aging analysis of accournks recelvable Required a Prepare the adjusting entry to recovd the alowance for doubeiuw accounts for the year b Show how Accounts Receivable (including the credit Dalances) and the Alowance for Doubehid Accounts December 31 balance sheet. Geveral Journa Description Dec.31 To record allowance for credt loeses

Explanation / Answer

Expected Allowance balance required: Age-Group Accounts receivable Expected % Expected Allowance Current 263,000 2% 5260 0-60 days 29,000 6% 1740 61-180 days 12,200 15% 1830 Over 180 d ays 9,400 30% 2820 Total 313,600 Allowace required 11650 Balance required in Allowance 11650 Less: Credit balance in Allowance 2800 Bad debts expense 8850 Adjusting entry: Bad debts expense Dr. 8850      Allowance for doubtful accounts 8850 Req b: Current Assets: Accounts receivable 313600 Less: Allowance for doubtful accounts 11650 301950 Current liabilities: Customer overpayments 5700 Total 5700

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