vil. Ga ry\'s Dairy uses the aging approach to estimate bad debt expense. The ba

Question

vil. Ga ry's Dairy uses the aging approach to estimate bad debt expense. The balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, $16,000, (2) up to 120 days past due, $5,500, and (3) more than 120 days past due, $2,500. 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) 2 percent, (2) 10 percent, and (3) 50 percent, respectively. At December 31, 2011 (end of the current year), the Allowance for Doubtful Accounts balance is $90 (credit) before the end-of-period adjusting entry is made. Required: What amount should adjusting journal entry. be recorded as Bad Debt Expense for the current year? Prepare the

Explanation / Answer

Notes: 1 CALCULATION OF PROVISION OF BAD DEBTS FOR THE YEAR END Age Group Amount %   Expense Value Not Due $                  16,000 2.00% $                    320 Upto 120 Days Past Due $                     5,500 10.00% $                    550 More than 120 Days Past Due $                     2,500 50.00% $                1,250 $                1,800 Notes: 2 Allowance for Doubtfull Debts (Opening Bal.) $                           90 Credit Provision for the Allowance of Bad debts = $                     1,800 Credit Balance need to be provission for the year $                     1,710 Credit So we can show the bad debts expenses for the year = $                     1,710 Journal Entries Date Account Title and explanation Debit Credit Bad Debt Expenses $                     1,710 1      To Allowance for Doubtful Debts $                       1,710 (To Record the allowance for Doubtfull Debts for the year End)

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