Question
On January 1, 2019, Fredo Corporation had a balance in the allowance for doubtful accounts of $39,000 (after the adjustment on December 31, 2018). During
On January 1, 2019, Fredo Corporation had a balance in the allowance for doubtful accounts of $39,000 (after the adjustment on December 31, 2018). During the year, Fredo wrote off specific accounts receivable in the amount of $32,000.
The following account balances related to credit sales and receivables prior to recording adjusting entries.
Sales Revenue (all credit sales) = $1,250,000
Accounts Receivable = $820,000
- First assume that bad debts expense is computed as 5% of credit sales for the year. Compute the adjusted balances for bad debts expense and for the allowance for doubtful accounts. Provide the "Bad Debts Expense" and Provide the "Allowance for Doubtful Accounts (adjusted balance)".
- Next assume that the aging of accounts receivable method is used to compute bad debts expense. Based upon historical experience, 4% of accounts receivable that are current (not past due) are estimated to be uncollectible, 12% of accounts receivable that are 30-59 days past due are estimated to be uncollectible, 20% of accounts receivable that are 60-89 days past due are estimated to be uncollectible, and 35% of accounts receivable that are over 90 days past due are estimated to be uncollectible. The aging of accounts receivable provides the following data:
- Account Status
Current (not past due) = 480,000
30-59 days past due = 150,000
60-89 days past due = 100,000
Over 90 days past due = 90,000
Total = 820,000
Compute the adjusted balances for bad debts expense and for the allowance for doubtful accounts. Provide the "Bad Debts Expense" and provide the "Allowance for Doubtful Accounts (adjusted balance)."
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