Problem 9-38 Aging accoun and accounting for bad debts P2 P3 Hovak Company has c

Question

Problem 9-38 Aging accoun and accounting for bad debts P2 P3 Hovak Company has credit sales of $4,50 Allowance for Doubtful Accounts has an unadjusted debit balance of $3.40 ule of its December 31. 2017, accounts receivable by age. On the basis o 0.000 for year 2017. At December 31, 2017, the company's 0. Hovak prepares a sched- ts receivable of receivables in each age category that will become uncollecti summarized here. December 31, 2017 Age of Expected Percent Accounts Receivable 396,400 277,800 Uncollectible Accounts Receivable Not yet due 1 to 30 days past due 31 to 60 days past due 61 to 90 days past due Over 90 days past due 2.0% 4.0 8.5 39.0 82.0 48,000 6,600 2.800 Required 1. Compute the required balance of the Allowance for Doubtful Accounts at December 31, 2017, using the aging of accounts receivable method. 2. Prepare the adjusting entry to record bad debts expense at December 31,2017 Analysis Component 3. On July 31, 2018, Hovak concludes that a customer's $3,455 receivable (created in 2017) is uncollect- Check (2) Dr.Bad Debts Expense, $31,390 ible and that the account should be written off. What effect will this action have on Hovak's 2018 net income? Explain.

Explanation / Answer

1 Age of A/R Amount % uncollectible Allowance Not yet due 396400 2% 7928 1-30 days 277800 4% 11112 31-60 days 48000 8.50% 4080 61-90 days 6600 39% 2574 Over 90 days 2800 82% 2296 Total 731600 27990 Required balance of Allowance for Doubtful accounts is $27990 2 Bad debts expense 31390 =27990+3400              Allowance for Doubtful accounts 31390 3 Net income under allowance method is not affected by write-off of receivables. Under the allowance method estimated bad debts expense is recognized in the year of sale. So net income will be unaffected by actual write-off of receivables

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