Chapter 5, Problem 85APSA

Determining Bad Debt Expense Using the Aging Method

At the beginning of the year, Tennyson Auto Parts had an accounts receivable balance of $31,800 and a balance in the allowance for doubtful accounts of $2,980 (credit). During the year, Tennyson had credit sales of $624,300, collected accounts receivable in the amount of $602,700, wrote off $18,600 of accounts receivable, and had the following data for accounts receivable at the end of the period:

Required:

1. Determine the desired post adjustment balance in allowance for doubtful accounts.

2. Determine the balance in allowance for doubtful accounts before the bad debt expense adjusting entry is posted.

3. Compute bad debt expense.

4. Prepare the adjusting entry to record bad debt expense.

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.

To calculate:

The post adjustment balance in allowance for doubtful accounts.

Answer to Problem 85APSA

The post adjustment balance in allowance for doubtful accounts is $\$1,818$.

Explanation of Solution

The Tennyson Auto Parts accounts receivables indicate a total of $\$34,800$ which is as follows:

Accounts Receivables

Amount $\left(\$\right)$	Proportion expected
$\text{Current}$	$20,400$	$0.01$
$\text{1}-15\text{ days past due}$	$5,300$	$0.02$
$16-45\text{ days past due}$	$3,100$	$0.08$
$\text{46}-90\text{ days past due}$	$3,600$	$0.15$
$\text{Over }90\text{ days past due}$	$2,400$	$0.30$

This is given in the question.

The post adjustment balance in allowance for doubtful accounts for the Tennyson Auto Parts is as follows:

Accounts Receivables

Amount $\left(\$\right)$	Proportion expected	Allowance required $\left(\$\right)$
$\text{Current}$	$20,400$	$0.01$	$204$
$\text{1}-15\text{ days past due}$	$5,300$	$0.02$	$106$
$16-45\text{ days past due}$	$3,100$	$0.08$	$248$
$\text{46}-90\text{ days past due}$	$3,600$	$0.15$	$540$
$\text{Over }90\text{ days past due}$	$2,400$	$0.30$	$720$
Total			$1,818$

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.

To calculate:

The balance in allowance for doubtful accounts before the adjustment of bad debt.

Answer to Problem 85APSA

The balance in allowance for doubtful accounts before the adjustment of bad debt expense is $\$15,620$.

Explanation of Solution

The Tennyson Auto Parts has an opening balance in the allowance for doubtful account of $\$2,980$ credit balance. An amount of $\$18,600$ is to be written off. This is given in the question.

The computation of allowance for doubtful account for Tennyson Auto Parts is as follows:

Allowance for Doubtful Account
Particulars	Amount $\left(\$\right)$	Particulars	Amount $\left(\$\right)$
Write off	$18,600$	Opening Balance	$2,980$
		Bad debts	$17,438$
Post adjustment balance	$1,818$

So, the balance in the account before adjusting the bad debt expense is $\$15,620\left(\$18,600-\$2,980\right)$.

To determine

(c)

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 85APSA

The amount of bad debt expense is $\$17,438$.

Explanation of Solution

The Tennyson Auto Parts has an opening balance in the allowance for doubtful account of $\$2,980$ credit balance. An amount of $\$18,600$ is to be written off. This is given in the question.

The computation of bad debt expense for Tennyson Auto Parts is as follows:

Allowance for Doubtful Account
Particulars	Amount $\left(\$\right)$	Particulars	Amount $\left(\$\right)$
Write off	$18,600$	Opening Balance	$2,980$
		Bad debts	$17,438$
Post adjustment balance	$1,818$

To determine

(d)

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 85APSA

The necessary journal adjusting entry has been recorded properly.

Explanation of Solution

The Tennyson Auto Parts has an opening balance in the allowance for doubtful account of $\$2,980$ credit balance. An amount of $\$18,600$ is to be written off. This is given in the question. The bad debt expense is $\$17,438$.

The adjusting journal entry for the Tennyson Auto Parts is as follows:

Date	Particulars	Debit ($)	Credit ($)
	Bad debt expense…………………………… Allowance for Doubtful accounts….……(Record the adjusting entry for bad debt estimation)	$17,438$	$17,438$