PART A (RECEIVABLES): CNL Company uses the aging of account receivable approach

Question

PART A (RECEIVABLES): CNL Company uses the aging of account receivable approach to estimate bad debt expense. The balance of each account receivable is grouped on the basis of three time periods: (1) not year due, S550,000, (2) up to 120 days past due, S100,000, and (3) more than 120 days past due, $40,000. Experience has shown that for each age group, the average loss rate on the amount of the receivables at year-end due to uncollectability is (1) 3.5 percent, (2) 10 percent, and (3) 30 percent, respectively. At December 31, 2013, the Allowance for Doubtful Accounts balance is $800 (debit) before the end-of-period adjusting entry is made. 1. What is the ending balance for account receivable (gross)? [3 POINTS] 2. What is the ending balance for Allowance for Doubtful Accounts after the adjusting entry? [5 POINTS] 3. Prepare the appropriate bad debt expense adjusting entry for the year 2013. [3 POINTS]

Explanation / Answer

Age Accounts Receivable Percentage uncollectible Allowance Not yet due 550000 3.50% 19250 Up to 120 days past due 100000 10% 10000 More to 120 days past due 40000 30% 12000 Total 690000 41250 1 Ending balance for Accounts Receivable = $690000 2 Ending balance for Allowance for Doubtful acoounts = $41250 3 Bad debts expense 42050 =41250+800        Allowance for Doubtful acoounts 42050

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