Sprague Company uses the aging method to adjust the allowance for uncollectibleaccounts at the end of the period. At December 31, 2018, the balance of accounts receivable is$250,000 and the allowance for uncollectible accounts has a credit balance of $4,000 (beforeadjustment). An analysis of accounts receivable produced the following age groups:Current ...................................... $150,00060 days past due......................... 90,000Over 60 days past due................ 10,000$250,000Based on past experience, Sprague estimates that the percentage of accounts that will prove tobe uncollectible within the three age groups is 2% of the current balance, 8% of the 60 dayspast due balance, and 18% of the over 60 days past due balance. Based on these facts, theadjusting entry for uncollectible accounts should be made in the amount ofa. $8,000.b. $12,000.c. $17,000.d. $16,000.
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Sprague Company uses the aging method to adjust the allowance for uncollectible
accounts at the end of the period. At December 31, 2018, the balance of
$250,000 and the allowance for uncollectible accounts has a credit balance of $4,000 (before
adjustment). An analysis of accounts receivable produced the following age groups:
Current ...................................... $150,000
60 days past due......................... 90,000
Over 60 days past due................ 10,000
$250,000
Based on past experience, Sprague estimates that the percentage of accounts that will prove to
be uncollectible within the three age groups is 2% of the current balance, 8% of the 60 days
past due balance, and 18% of the over 60 days past due balance. Based on these facts, the
adjusting entry for uncollectible accounts should be made in the amount of
a. $8,000.
b. $12,000.
c. $17,000.
d. $16,000.
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