Question
Innovative Tech Inc. (ITI) uses the percentage of credit sales method to estimate bad debts each month and then uses the aging method at year-end.
Innovative Tech Inc. (ITI) uses the percentage of credit sales method to estimate bad debts each month and then uses the aging method at year-end. During November, ITI sold services on account for $100,000 and estimated that of one percent of those sales would be uncollectible. At its December 31 year-end, total Accounts Receivable is $89,000, aged as follows: (1) 130 days old, $75,000; (2) 3190 days old, $10,000; and (3) more than 90 days old, $4,000. Experience has shown that for each age group, the average rate of uncollectibility is (1) 10 percent, (2) 20 percent, and (3) 40 percent, respectively. Before the end-of-year adjusting entry is made, the Allowance for Doubtful Accounts has a $1,600 credit balance at December 31.
1) Prepare a schedule to estimate an appropriate year-end balance for the Allowance for Doubtful Accounts.
3) Show how the various accounts related to accounts receivable should be shown on the December 31 balance sheet.
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