Chapter 9, Problem 6BTN

To determine

Concept Introduction:

Aging method of accounts receivable

Aging method is a technique which is used to compute the balance in allowance for doubtful accounts. In this method all the accounts receivables are categorized into different accounts on the basis of period for which they are outstanding.

Allowance for doubtful debt is calculated by using expected percentage of uncollectible given for each category of account receivable.

$Allowancefordoubtfuldebt=AccountsReceivable\times Expectedpercentageofuncollectible$

Requirement 1-

To compute:

Amount of anticipated balance of allowance of doubtful debt.

Answer to Problem 6BTN

Solution:

December 31, 2015 Accounts receivable	Age of Accounts receivable	Expected percentage of uncollectible	Allowance for doubtful debt
$830,000	Not yet due	1.25%	$10,375
$254,000	1-30 days past due	2%	$5,080
$86,000	31-60 days past due	6.50%	$5,590
$38,000	61-90 days past due	32.75%	$12,445
$12,000	Over 90 days past due	68%	$8,160
1,220,000			$41,650

Explanation of Solution

Accounts receivable, Age of Accounts receivable and expected percentage of uncollectible was already given in the question.

We need to calculate the Allowance for doubtful debt-

$\begin{array}{l}Allowancefordoubtfuldebt=AccountsReceivable\times Expectedpercentageofuncollectible\\ \begin{array}{l}Allowancefordoubtfuldebtforreceivablewhichisnotyetdue=\$830,000\times 1.25\%\hfill \\ Allowancefordoubtfuldebtforreceivablewhichisnotyetdue=\$10,375\hfill \\ \hfill \\ Allowancefordoubtfuldebtforreceivable1-30dayspastdue=\$254,000\times 2\%\hfill \\ \begin{array}{l}Allowancefordoubtfuldebtforreceivable1-30dayspastdue=\$5,080\\ \end{array}\hfill \\ Allowancefordoubtfuldebtforreceivable31-60dayspastdue=\$86,000\times 6.50\%\hfill \\ Allowancefordoubtfuldebtforreceivable31-60dayspastdue=\$5,590\hfill \\ \hfill \\ Allowancefordoubtfuldebtforreceivable61-90dayspastdue=\$38,000\times 32.75\%\hfill \\ Allowancefordoubtfuldebtforreceivable61-90dayspastdue=\$12,445\hfill \\ \hfill \\ AllowancefordoubtfuldebtforreceivableOver90dayspastdue=\$12,000\times 68\%\hfill \end{array}\\ AllowancefordoubtfuldebtforreceivableOver90dayspastdue=\$8,160\end{array}$

Total amount of Allowance for doubtful debt-

$\begin{array}{l}Allowancefordoubtfuldebt=\$10,375+\$5,080+\$5,590+\$12,445+\$8,160\hfill \\ Allowancefordoubtfuldebt=\$41,650\hfill \end{array}$

Conclusion

Thus, amount of allowance of doubtful debt ascertained is $41,650.

To determine

Requirement 2-

To prepare:

The adjusting entry for recording bad debts.

Answer to Problem 6BTN

Solution:

Date	Account titles and description	Debit ($)	Credit ($)
31-Dec	Bad debt	27,150
	Allowance for doubtful account		27,150
	(To record anticipated bad debts)

Explanation of Solution

Given,

• Unadjusted balance = $14,500

• Required allowance balance =$41,650 (calculated in Req.1)

We need to calculate the amount of adjustment to be made to allowance-

$\begin{array}{l}Adjustmenttoallowance=Requiredallowancebalance-Unadjustedbalance\hfill \\ Adjustmenttoallowance=\$41,650-\$14,500\hfill \\ Adjustmenttoallowance=\$27,150\hfill \end{array}$

Conclusion

Thus, adjusting entry has been passed and ascertained adjustment to allowance is $27,150.

To determine

Requirement 3-

To present:

The accounts receivables in Balance sheet for the December 31, 2017

Answer to Problem 6BTN

Solution:

Balance Sheet
Particulars	Amount ($)
Gross Accounts receivable	1,220,000
Less: Bad debts	(41,650)
Net Accounts receivable	1,178,350

Explanation of Solution

Given,

• Gross Accounts receivable= $1,220,000

• Bad debts= $41,650 (calculated in Req.1)

Calculation of Net accounts receivable is as follows-

$\begin{array}{l}Netaccountsreceivable=GrossAccountsreceivable-Baddebts\hfill \\ Net accountsreceivable=\$1,220,000-\$41,650\hfill \\ Net accountsreceivable=\$1,178,350\hfill \end{array}$

Conclusion

Thus, in balance sheet, accounts receivable is shown as net of allowance or bad debt expense and net accounts receivable for December 31, 2015 is $1,178,350.