CHAPTER 8 Receivables Problem 8-2B Estimating bad debt expense LO2, 3 CHECK FIGURES: 1b. Bad Debt Expense = $11,240 2. Accounts receivable (net) = $216,160 On December 31, 2020, Stilton Service Company's year-end, the unadjusted trial balance included the follow- ing items: Account Debit Credit $239,000 Accounts receivable. Allowance for doubtful accounts Sales ($470,000 cash sales) $ 3,100 1,128,000 Required 1. Prepare the adjusting entry on the books of Stilton Service Company to estimate bad debts under each of the following independent assumptions: a. Bad debts are estimated to be 3% of credit sales. b. An analysis suggests that 6% of outstanding accounts receivable on December 31, 2020, will become uncollectible. 2. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear on the December 31, 2020, balance sheet given the facts in requirement 1(a). 3. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear on the December 31, 2020, balance sheet given the facts in requirement 1(b). Analysis Component: Would you recommend to Stilton that it use the income statement or the balance sheet approach to estimate uncollectible accounts receivable? Explain why, identifying advantages and dis- advantages for each approach. Problem 8-3B Aging accounts receivable LO2, 3 excel CHECK FIGURE: 2. Bad Debt Expense = $43,860 On December 31, 2020, RCA Company's Allowance for Doubtful Accounts had an unadjusted debit balance of $7,800. The accountant for RCA has prepared a schedule of the December 31, 2020, accounts receivable by age and, on the basis of past experience, has estimated the percentage of the receivables in each age category that will become uncollectible. This information is summarized as follows: December 31, 2020 Accounts Receivable Age of Accounts Receivable Expected Percentage Uncollectible $620,000 355,600 91,000 11,500 7,600 Not due (under 30 days) 1 to 30 days past due 31 to 60 days past due 61 to 90 days past due Over 90 days past due 1.75% 2.5 8.5 35.00 60.00 Required 1. Calculate the amount that should appear in the December 31, 2020, balance sheet as the Allowance for Doubtful Accounts. 2. Prepare the journal entry to record bad expense for 2020. Analysis Component: On July 31, 2021, RCA concluded that a customer's $4,200 receivable (created in 2020) was uncollectible and that the account should be written off. What effect will this action have on RCA's 2021 profit? Explain your answer. 592