Chapter 5, Problem 68E

Bad Debt Expense: Aging Method

Glencoe Supply had the following accounts receivable aging schedule at the end of a recent year.

The balance in Glencoe’s allowance for doubtful accounts at the beginning of the year was $58,620 (credit). During the year, accounts in the total amount of $62,400 were written off.

Required:

1. Determine bad debt expense.

2. Prepare the journal entry to record bad debt expense.

3. If Glencoe had written off $90,000 of receivables as uncollectible during the year, how much would bad debt expense reported on the income statement have changed?

To determine

(a)

Aging method:

This is a method in which the receivables are sorted according to their collectable estimation. This is done on the basis of their outstanding invoices period. Basically, aging means to check the how old an outstanding balance of receivable is present in the books.

The computation of bad debt expense.

Answer to Problem 68E

The amount of bad debt expense is $\$15,663$.

Explanation of Solution

The Glencoe Supply accounts receivables and balance in allowance for doubtful accounts for the Glencoe Supply is as follows:

Accounts Receivables	Amount $\left(\$\right)$	Proportion expected	Allowance required $\left(\$\right)$
$\text{Current}$	$3,10,500$	$0.005$	$1,553$
$\text{1}-30\text{ days past due}$	$47,500$	$0.01$	$475$
$31-45\text{ days past due}$	$25,000$	$0.13$	$3,250$
$\text{46}-90\text{ days past due}$	$12,800$	$0.20$	$2,560$
$\text{91}-135\text{ days past due}$	$6,100$	$0.25$	$1,525$
$\text{Over 135 days past due}$	$4,200$	$0.60$	$2,520$
Total			$11,883$

The Glencoe Supply has an opening balance in the allowance for doubtful account of $\$58,620$ credit balance. An amount of $\$62,400$ is to be written off. This is given in the question.

The computation of bad debt expense for Glencoe Supply is as follows:

Allowance for doubtful accounts
Opening Balance	$\left(\$58,620\right)$
Add: Written off	$\$62,400$
Add: Closing Balance $\left(\text{Given}\right)$	$\$11,883$
Bad Debt Expense	$\$15,663$

To determine

(b)

Aging method:

This is a method in which the receivables are sorted according to their collectable estimation. This is done on the basis of their outstanding invoices period. Basically, aging means to check the how old an outstanding balance of receivable is present in the books.

The necessary adjusting journal entry for recording the bad debt.

Answer to Problem 68E

The necessary journal adjusting entry has been recorded properly.

Explanation of Solution

The Glencoe Supply has an opening balance in the allowance for doubtful account of $\$58,620$ credit balance. An amount of $\$62,400$ is to be written off. This is given in the question. The bad debt expense is $\$15,663$.

The adjusting journal entry for the Glencoe Supply is as follows:

Date	Particulars	Debit ($)	Credit ($)
	Bad debt expense......... Allowance for Doubtful accounts.... (Record the adjusting entry for bad debt estimation)	$\$15,663$	$\$15,663$

To determine

(a)

Aging method:

This is a method in which the receivables are sorted according to their collectable estimation. This is done on the basis of their outstanding invoices period. Basically, aging means to check the how old an outstanding balance of receivable is present in the books.

The computation of bad debt expense after changing in the written off amount.

Answer to Problem 68E

The amount of bad debt expense after the change in the written off amount is $\$43,263$.

Explanation of Solution

The Glencoe Supply accounts receivables and balance in allowance for doubtful accounts for the Glencoe Supply is as follows:

Accounts Receivables	Amount $\left(\$\right)$	Proportion expected	Allowance required $\left(\$\right)$
$\text{Current}$	$3,10,500$	$0.005$	$1,553$
$\text{1}-30\text{ days past due}$	$47,500$	$0.01$	$475$
$31-45\text{ days past due}$	$25,000$	$0.13$	$3,250$
$\text{46}-90\text{ days past due}$	$12,800$	$0.20$	$2,560$
$\text{91}-135\text{ days past due}$	$6,100$	$0.25$	$1,525$
$\text{Over 135 days past due}$	$4,200$	$0.60$	$2,520$
Total			$11,883$

The Glencoe Supply has an opening balance in the allowance for doubtful account of $\$58,620$ credit balance. An amount of $\$90,000$ is to be written off. This is given in the question.

The computation of bad debt expense for Glencoe Supply is as follows:

Allowance for doubtful accounts
Opening Balance	$\left(\$58,620\right)$
Add: Written off	$\$90,000$
Add: Closing Balance $\left(\text{Given}\right)$	$\$11,883$
Bad Debt Expense	$\$43,263$