Quisp Company has credit sales of $3.5 million for year 2005. On December 31, 2005, the company’s Allowance for Doubtful Accounts has an unadjusted debit balance of $4,100. Quisp prepares a schedule of its December 31, 2005, 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, 2005, us¬ ing the aging of accounts receivable method.
2. Prepare the adjusting entry to record bad debts expense at December 31, 2005.

Analysis Component 3.On July 31, 2006, Quisp concludes that a customer’s $2,345 receivable (created in 2005) is un¬ collectible and that the account should be written off. What effect will this action have on Quisp’s 2006 net income? Explain.

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2 3 4 5 7 0 Ele Edit Yew Insert Format Iools Data Accounting Window Help 18x BIU A December 31, 2005 Accounts Receivable $296,400 177,800 ANN B100-2 Arial B Age of Accounts Receivable Not yet due 1 to 30 days past due Expected Percent Uncollectible 2.0% 4.0 3,700 31 to 60 days past due 61 to 90 days past due Over 90 days past due 8.5 39.0 82.0 58,000 7,600 Sheet! Sheet2Sheet