Creative Co. uses the allowance method to estimate uncollectible accounts receivable. The computer produced the following aging of the accounts receivable at year end:

The unadjusted balance in Allowance for Doubtful Accounts is a credit of $5,000.
Instructions
(a) Complete the aging schedule and calculate the total estimated uncollectible accounts from the above information.
(b) Record the bad debt adjusting entry using the above information.
(c) In the following year, $12,200 of the outstanding accounts receivable is determined to be uncollectible. Record the write off of the uncollectible accounts.
(d) The company collects $3,400 of the $12,200 of accounts receivable that were determined to be uncollectible in
(c). No further amounts are expected to be collected. Prepare the journal entry (or entries) to record the collection of this amount.
(e) Comment on how your answers to parts (a) to (d) would change if Creative Co. used a percentage of total accounts receivable of 8% instead of aging the accounts receivable.
TAKING IT FURTHER
What are the advantages for the company of aging the accounts receivable rather than applying a percentage to total accounts receivable?

Transcribed Image Text:

Number of Days Outstanding 0-30 Total $210,000 91-120 31-60 $55,000 7% 61-90 Accounts receivable Estimated % uncollectible Estimated uncollectible accounts $120,000 20,000 $15 196 12% 25%