Question No BD 2:
Company XYZ uses the allowance method for its uncollectible accounts receivable. During the year, a monthly bad debt accrual is made by applying 2% times the amount of credit sales for the month. At the year end Dec 31st, an ageing of accounts receivable is prepared and the allowance for uncollectible accounts is adjusted accordingly.
At end of 2004, accounts receivables were $1,500,000 and the allowance account had a credit balance of $160,000.
Details of Accounts Receivable for the year is as follows:
Beginning balance $1,500,000
Credit sales $4,200,000
Write Offs ($90,000)
Ending balance $1,910,000
The following is the Summary Ageing As At Dec 31st:
Ageing bucket Estimate of % Uncollectible
0 – 60 days $1,512,000 5%
61 – 90 days $220,000 10%
91- 120 days $50,000 30%
> 120 days $128,000 50%
(a) Prepare a summary journal entry to record the monthly bad debt accrual and the write-offs during the year
(b) Prepare the necessary year-end adjusting entry for bad debt expense.
(c) What is the total bad debt expense for 2005. How would accounts receivable appear in the 2005 Balance Sheet?
[ Refer Answer ]
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