Daley Company estimates uncollectible accounts using the allowance method at December 31. It prepared the following aging of receivables analysis.

Daley Company estimates uncollectible accounts using the allowance method at December 31. It prepared the following aging of receivables analysis.

				Days Past Due
	Total			0			1 to 30				31 to 60				61 to 90				Over 90
Accounts receivable	$	600,000		$	402,000			$	96,000			$	42,000			$	24,000			$	36,000
Percent uncollectible					1	%			2	%			5	%			7	%			10	%

a. Estimate the balance of the Allowance for Doubtful Accounts assuming the company uses 6% of total accounts receivable to estimate uncollectibles, instead of the aging of receivables method.



 

b. Prepare the adjusting entry to record Bad Debts Expense using the estimate from part a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $12,600 credit.
c. Prepare the adjusting entry to record bad debts expense using the estimate from part a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $1,600 debit.



Explanation
a.
Computation of the estimated balance of the allowance for uncollectibles:
$600,000 × 0.06 = $36,000 credit
 
b. & c.

Unadjusted balance	$	12,600	credit
Estimated balance		36,000	credit
Required adjustment	$	23,400	credit

Unadjusted balance	$	1,600	debit
Estimated balance		36,000	credit
Required adjustment	$	37,600	credit

Thank you!