Question
Putnam & Putnam, a legal firm, uses the balance sheet approach to estimate uncollectible accounts expense. At year-end, an aging of the accounts receivable produced
Putnam & Putnam, a legal firm, uses the balance sheet approach to estimate uncollectible accounts expense. At year-end, an aging of the accounts receivable produced the following five groupings.
a. | Not yet due | $ | 300,000 | ||
b. | 130 days past due | 126,000 | |||
c. | 3160 days past due | 48,000 | |||
d. | 6190 days past due | 9,000 | |||
e. | Over 90 days past due | 18,000 | |||
Total | $ | 501,000 | |||
On the basis of past experience, the company estimated the percentages probably uncollectible for the five age groups to be as follows: Group a, 1 percent; Group b, 3 percent; Group c, 10 percent; Group d, 20 percent; and Group e, 50 percent.
The Allowance for Doubtful Accounts before adjustment at December 31 showed a credit balance of $7,080.
Required: b. Prepare the adjusting entry needed to bring the Allowance for Doubtful Accounts to the proper amount.
c. Assume that on January 10 of the following year, Putnam & Putnam learned that an account receivable that had originated on September 1 in the amount of $5,160 was worthless because of the bankruptcy of the client, Safeland Co. Prepare the journal entry required on January 10 to write off this account.
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