Question
Norwood Ltd analysed its accounts receivable balances at 31 December 2020 and prepared an ageing analysis of the account as listed below. The percentage of
Norwood Ltd analysed its accounts receivable balances at 31 December 2020 and prepared an ageing analysis of the account as listed below. The percentage of each aged group that have been proven uncollectable in the past are shown next to the aged balances.
The company uses the allowances method to account for bad debts. On 31 December 2020 the debit balance of the Allowance for Doubtful Debts account was $5,200 before any adjustments.
Required:
a) Determine the total estimated uncollectable accounts for Norwood Ltd at 31 December 2020 (2 marks)
b) Prepare the adjusting entry at 31 December 2020 to record the bad debts expense (2 marks)
Age of Accounts | Estimated uncollectable % | Balance |
Current | 2% | $175,000 |
31-60 days past due | 5% | 80,400 |
61-90 days past due | 20% | 13,400 |
Over 90 days past due | 50% | 7,560 |
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