Carmack Company has credit sales of $2.6 million for year 2011. On December 31, 2011, the company’s Allowance for Doubtful Accounts has an unadjusted credit balance of $13,400. Carmack prepares a schedule of its December 31, 2011, accounts receivable by age. On the basis of past experience, it estimates the percent of receivables in each age category that will become uncollectible. This information is summarized here.
|
December 31, 2011 |
Age of |
Expected Percent |
|
$730,000 |
Not yet due |
1.25% |
|
354,000 |
1 to 30 days past due |
2 |
|
76,000 |
31 to 60 days past due |
6.5 |
|
48,000 |
61 to 90 days past due |
32.75 |
|
12,000 |
Over 90 days past due |
68 |
Required
1. Estimate the required balance of the Allowance for Doubtful Accounts at December 31, 2011, using the aging of accounts receivable method.
2. Prepare the adjusting entry to record bad debts expense at December 31, 2011.
3. On June 30, 2012, Carmack Company concludes that a customer’s $3,750 receivable (created in 2011) is uncollectible and that the account should be written off. What effect will this action have on Carmack’s 2012 net income? Explain.