### Computing Bad Debt Expense Using Aging Analysis Scenario: Lin’s Dairy Lin’s Dairy uses the aging approach to estimate bad debt expense. The aging approach categorizes account receivables based on their age and applies different estimated loss percentages to these categories to determine potential uncollectible amounts. Account Aging Categories: 1. Not yet due: $16,800 2. Up to 120 days past due: $6,700 3. More than 120 days past due: $4,200 Estimated Loss Percentages by Category: - Not yet due: 2% - Up to 120 days past due: 15% - More than 120 days past due: 36% Current Financial Considerations: - At the end of the current year, the Allowance for Doubtful Accounts balance is $900 (credit) before adjusting entries. Required Calculation: - Determine the amount to be recorded as Bad Debt Expense for the year. Explanation of the Table: A table is used to calculate the estimated uncollectible amount for each category of aged accounts receivable: | Aged Accounts Receivable | Estimated Percentage Uncollectible | Estimated Amount Uncollectible | |--------------------------|--------------------------------------|-------------------------------| | Not yet due | 2% | | | Up to 120 days past due | 15% | | | Over 120 days past due | 36% | | Note: Enter percentages as whole numbers (e.g., enter 12% as 12). This table helps in calculating the total potential bad debt, taking into account the different risks associated with each category based on how overdue the receivables are.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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### Computing Bad Debt Expense Using Aging Analysis

**Scenario: Lin’s Dairy**

Lin’s Dairy uses the aging approach to estimate bad debt expense. The aging approach categorizes account receivables based on their age and applies different estimated loss percentages to these categories to determine potential uncollectible amounts.

**Account Aging Categories:**
1. **Not yet due:** $16,800
2. **Up to 120 days past due:** $6,700
3. **More than 120 days past due:** $4,200

**Estimated Loss Percentages by Category:**
- Not yet due: 2%
- Up to 120 days past due: 15%
- More than 120 days past due: 36%

**Current Financial Considerations:**
- At the end of the current year, the Allowance for Doubtful Accounts balance is $900 (credit) before adjusting entries.

**Required Calculation:**
- Determine the amount to be recorded as Bad Debt Expense for the year.

**Explanation of the Table:**

A table is used to calculate the estimated uncollectible amount for each category of aged accounts receivable:

| Aged Accounts Receivable | Estimated Percentage Uncollectible | Estimated Amount Uncollectible |
|--------------------------|--------------------------------------|-------------------------------|
| Not yet due | 2% | |
| Up to 120 days past due | 15% | |
| Over 120 days past due | 36% | |

**Note:** Enter percentages as whole numbers (e.g., enter 12% as 12).

This table helps in calculating the total potential bad debt, taking into account the different risks associated with each category based on how overdue the receivables are.

Expert Solution

Step 1 Introduction

Bad debts: It is a receivable that is now irrecoverable from that person who was supposed to pay the same. The reason for nonpayment by the debtors is that either they go bankrupt, have financial problems, or collection by the creditors due to various reasons is not possible.

Step 2 Computation of bad debt expenses for the year

Aged account receivable	Working note	Amount ($)	Estimated percentage uncollectable	Estimated amount Uncollectible Amount ($)
Not yet due	1	16,800	2%	336
Up to 120 days past due	2	6,700	15%	1,005
Over 120 days past due	3	4,200	36%	1,512
Estimated balance in the allowance for doubtful accounts				2,853
Less: Current balance in the allowance for doubtful accounts				(900)
Bad debt expenses for the current year				1,953