Learning Objective 4: Apply GAAP to uncollectible receivables at December 31, 20

Question

Learning Objective 4: Apply GAAP to uncollectible receivables at December 31, 2016, before any year-end adjustments, the Accounts Receivable balance of Haley Travel, Inc., is $400,000. The Allowance for Doubtful Accounts has a $19,600 credit balance. Haley Travel prepares the following aging schedule for Accounts Receivable:

                                                                                                                                Age of Accounts

                Total Balance                                     1-30 Days            31-60 Days          61-90 Days          Over 90 Days

                $400,000                                              $180,000              $120,000              $80,000                      $20,000

                Estimated uncollectible                      0.5%      5.0% 11.0%                          50.0%

                Requirements:

1.            Based on the aging of Accounts Receivable, is the unadjusted balance of the allowance account adequate? Too high? Too low?

2.            Make the entry required by the aging schedule. Prepare a T-account for the allowance.

3.            Show how Haley Travel will report Accounts Receivable on its December 31 balance sheet

Solution: Req. 1 1-30 31-60 61-90 Over 90 Total days days days days balance Est. % uncollectible x    .005 x     .05 x     .11 x      .50 Bal. in Allow. for Doubtful Accounts should be $ 0 $ 0 $ 0 $ 0 $          - Current balance Amount needed in adj. entry Req. 2 Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Dec. 31                 - Allowance for Doubtful Accounts Bal. Req. 3 BALANCE SHEET Current assets: Cash $    Short-term investments Accounts receivable, net of allowance for doubtful accounts of $ * Or *Another way to report accounts receivable is Accounts receivable Less: Allowance for doubtful accounts

Explanation / Answer

1 1 -30 days 31-60 61-90 Over 90 Total Estimated percentage uncollectible 0.50% 5% 11% 50% Accounts receivable 180000 120000 80000 20000 400000 Balance in allowance for doubtful accounts 900 6000 8800 10000 25700 Balance in allowance for doubtful accounts 25700 Current balance 19600 Amount needed ina djusting entry 6100 2 Adjusting entry Bad debt expense 6100             Allowance for doubtful accounts 6100 Allowance for doubtful accounts Debit Credit Beginning balance 19600 Adjusting entry 6100 0 25700 Ending balance 25700 3 Balance sheet Accounts receivable 400000 Allowance for doubtful accounts -25700 Net accounts receivable 374300

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