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Estimating and Recording Bad Debt Estimates and Write-Offs; Reporting of Accounts Receivable At December 31, its annual year-end, the accounts of Sun Systems Inc.
Estimating and Recording Bad Debt Estimates and Write-Offs; Reporting of Accounts Receivable At December 31, its annual year-end, the accounts of Sun Systems Inc. show the following. 1. $180,000 in sales revenue for the year, of which one-sixth was on account. 2. $900 credit balance in Allowance for Doubtful Accounts, as of December 31 of the prior year. 3. $18,050 debit balance in Accounts Receivable as of December 31 of the current year (prior to any write-offs of uncollectible accounts during the current year). 4. $1,050 in uncollectible accounts to be written off as of December 31 of the current year. 5. Aging schedule at December 31 of the current year, showing the following breakdown of total accounts receivable excluding amounts to be written off. Status Not past due Past due 1-60 days Past due over 60 days Amount Remainder $4,000 3,000 Required a. Prepare the entry to write off the uncollectible accounts. b. Prepare the adjusting entry on December 31 to record bad debt expense for each of the following separate assumptions concerning expected bad debt loss rates. Note: Treat each situation separately. 1. Bad debt expense is based on 1.5% of credit sales. 2. Allowance for doubtful accounts is based on 2.5% of total receivables at year-end. 3. Allowance for doubtful accounts is based on the following aging schedule: Not past due, 0.5%; Past due 1-60 days, 1%; and Past due over 60 days, 8%. 4. Bad debt expense is based on the direct write-off method (assume entry in part a has not been recorded).
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