Daley company estimates uncollectible accounts using the allowance method at december 31. it prepared the following aging of receivables analysis. days past due total 0 1 to 30 31 to 60 61 to 90 over 90 accounts receivable $ 650,000 $ 412,000 $ 106,000 $ 52,000 $ 34,000 $ 46,000 percent uncollectible 2 % 3 % 6 % 8 % 11 % a. estimate the balance of the allowance for doubtful accounts assuming the company uses 4% of total accounts receivable to estimate uncollectibles, instead of the aging of receivables method. b. prepare the adjusting entry to record bad debts expense using the estimate from part a. assume the unadjusted balance in the allowance for doubtful accounts is a $13,600 credit and $2,600 debit.

Explanation:

a. The computation of the balance of the Allowance for Doubtful Accounts is shown below:

= Total accounts receivable × given percentage

= $650,000 × 4%

= $26,000

b. The journal entry is shown below:

For $13,600 credit

Bad debt expense A/c Dr $12,400       ($26,000 - $13,600)

   To Allowance for Doubtful Accounts $12,400

(Being bad debt is recorded)

For $2,600 debit

Bad debt expense A/c Dr $28,600 ($26,000 + $2,600)

   To Allowance for Doubtful Accounts $28,600

(Being bad debt is recorded)

a. The estimation of the allowance for doubtful account balance is given below:

Estimation of the allowance for doubtful debts = Total balance of accounts receivable × percentage given

= $650,000 × 4%

= $26,000

b. The recording of journal entry is as follows

For unadjusted balance $13,600 credit

Bad debt expense A/c Dr $12,400    

  To Allowance for Doubtful Accounts $12,400

(Being bad debt expense is recorded)

It is computed below:

= $26,000 - $13,600

= 12,400

For unadjusted balance $2,600 debit

Bad debt expense A/c Dr $28,600

              To Allowance for Doubtful Accounts $28,600

(Being bad debt expense is recorded)

It is computed below:

= $26,000 + $2,600

= $28,600

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