Rianna.com uses the allowance method of accounting for bad debts. The company produced the following aging of the accounts receivable at year-end.

Instructions
(a) Calculate the total estimated bad debts based on the above information.
(b) Prepare the year-end adjusting journal entry to record the bad debts using the aged uncollectible accounts receivable determined in (a). Assume the unadjusted balance in
Allowance for Doubtful Accounts is a $4,000 debit.
(c) Of the above accounts, $5,000 is determined to be specifically uncollectible. Prepare the journal entry to write off the uncollectible account.
(d) The company collects $5,000 subsequently on a specific account that had previously been determined to be uncollectible in (c). Prepare the journal entries necessary to restore the account and record the cash collection.
(e) Comment on how your answers to (a)-(d) would change if Rianna.com used 3% of total accounts receivable, rather than aging the accounts receivable. What are the advantages to the company of aging the accounts receivable rather than applying a percentage to total accounts receivable?

Transcribed Image Text:

Number of Days Outstanding Total0 0-30 31-60 61-90 91-120Over 120 Accounts receivable $377,000 $22 % uncollectible Estimated bad debts 2,000 $90,000 $38,000 $15,000 $12,000 1% 4% 5% 840 10%