IV. Accounts Receivable Aging Method (15 points) At December 31 of the current y

Question

IV. Accounts Receivable Aging Method (15 points) At December 31 of the current year, Jupiter Company had a balance of $728,000 in its Accounts Receivable account and a credit balance of $6,000 in the Allowance for Doubtful Accounts. The company has aged its accounts as follows: Current 0-60 days past due 61-180 days past due Over 180 days past due $592,000 64,000 48,000 In the past, the company has experienced losses as follows: 1% of current balances, 5% of balances 0-60 days past due, 15% of balances 61-180 days past due, and 30% of balances over 180 days past due. The company bases its bad debts expense on the aging analysis. Required: a. Prepare the adjusting journal entry to record the bad debts expense for the year Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear in the December 31 balance sheet. c. On January 15 of the subsequent year, Jupiter Company wrote off the account of Ares, $2.600. Give the entry for the write-off. On February 20 of the subsequent year, Jupiter Company collected the $2,600 on the Ares account written off on January 15. Give the entry or entries for the recovery. d.

Explanation / Answer

AR ageing schedule Provision Provision Current          592,000 1%          5,920 0-60 days past due            64,000 5%          3,200 61-180 days past due            48,000 15%          7,200 over 180 days past due            24,000 30%          7,200 Total          728,000       23,520 Opening provision          6,000 Excess provision required       17,520 Solution 1 Bad Debts               Dr            17,520         To Provision for doubtful debts      17,520 (Being provision made) Solution 2 Asset side of balance Sheet Account receivable          728,000 less Allowance for doubtful debts          (23,520) Net Account receivable          704,480 Solution 3 Provision for doubtful debts      Dr              2,600        To Account receivable         2,600 (Being AR wrote off) Solution 4 Bank a/c                         Dr              2,600        To Bad debts recovered         2,600 (Being bad debts recovered)

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