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 | $ | 250,000 | ||
b. | 130 days past due | 105,000 | |||
c. | 3160 days past due | 40,000 | |||
d. | 6190 days past due | 7,500 | |||
e. | Over 90 days past due | 15,000 | |||
Total | $ | 417,500 | |||
On the basis of past experience, the company estimated the percentages probably uncollectible for the above 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 $5,900. |
Instructions
a. | Compute the estimated amount of uncollectible accounts based on the above classification by age groups. |
b. | Prepare the adjusting entry needed to bring the Allowance for Doubtful Accounts to the proper amount. |
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