Margrett Company has credit sales of $2.2 million for year 2011. At December 31, 2011, the company€™s Allowance for Doubtful Accounts has an unadjusted debit balance of $2,800. Margrett prepares a schedule of its December 31, 2011, accounts receivable by age. On the basis of past experience, it estimates the percent of receivables in each age category that will become uncollectible. This information is summarized here.

Required
1. Compute the required balance of the Allowance for Doubtful Accounts at December 31, 2011, using the aging of accounts receivable method.
2. Prepare the adjusting entry to record bad debts expense at December 31, 2011.
Analysis Component
3. On July 31, 2012, Margrett concludes that a customer€™s $3,455 receivable (created in 2011) is uncollectible and that the account should be written off. What effect will this action have on Margrett€™s 2012 net income? Explain.

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December 31, 2011 Accounts Receivable $616,000 298,000 64,000 41,000 Age of Expected Percent 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 0.90% 1.65 6.15 31.00 64.00 9.200