Wall Inc. uses the allowance method to estimate uncollectible accounts receivable.Thecompany produced the following aging of the accounts receivable at year end.
|
Number of Days Outstanding |
||||||
|
Accounts receivable |
Total |
0–30 |
31–60 |
61–90 |
91–120 |
Over 120 |
|
% uncollectible |
375,000 |
220,000 |
90,000 |
40,000 |
10,000 |
$15,000 |
|
Estimated bad debts |
1% |
4% |
6% |
8% |
10% |
|
Instructions
(a) Calculate the total estimated bad debts based on the above information.
(b) Prepare the year end adjusting journal entry to record the bad debts using the aged uncollectible accounts receivable determined in (a). Assume the current balance in Allowance for Doubtful Accounts is a $8,000 debit.
(c) Of the above accounts, $5,000 is determined to be specifically uncollectible. Prepare the journal entry to write off the uncollectible account.
(d) The company collects $5,000 subsequently on a specific account that had previously been determinedto be uncollectible in (c). Prepare the journal entry(ies) necessary to restore the accountand record the cash collection.
(e) Comment on how your answers to (a)–(d) would change if Wall Inc. used 3% of totalaccounts
receivable, rather than aging the accounts receivable.What are the advantages to the companyof aging the accounts receivable rather than applying a percentage to total accounts receivable?