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Nelson Associates Inc. uses the balance sheet approach to estimate uncollectible accounts and maintains an allowance account to reduce accounts receivable to realizable value.
Nelson Associates Inc. uses the balance sheet approach to estimate uncollectible accounts and maintains an allowance account to reduce accounts receivable to realizable value. An analysis of the accounts receivable at December 31 (year-end date) produced the following age groups: 1. Not yet due. 2. 1-30 days past due. 3. 31-60 days past due 4. 61-90 days past due 5. Over 90 days past due. Total accounts receivable. $400,000 210,000 80,000 15,000 25,000 $730,000 In reliance upon its past experience with collections, the company estimated the percentages probably uncollectible for the above five age groups to be as follows: Group 1, 1%; Group 2, 3%; Group 3, 20%; Group 4, 30%; and Group 5, 50%. Prior to adjustment at year-end, the Allowance for Doubtful Accounts showed a credit balance of $10,400. Required: a. b. Compute the estimated amount of uncollectible accounts on the basis of the above classification by age groups. Prepare the adjusting entry needed to bring the Allowance for Doubtful Accounts account to the proper amount.
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