Question & Answer: The following represents selected information taken from a company's aging schedule to estimate uncollectible accounts receivable at year-end. Jo…..

P8-1B The following represents selected information taken from a companys aging schedule to estimate uncollectible accounts receivable at year-end Journalize transactions related to bad debts (LO 2), AP Number of Days Outstandin Tota0-30 31-60 61-90 91-120 Over 120 Accounts receivable $305,000 $107,000 $60,000 $50,000 $38,000 $50,000 % uncollectible Estimated bad debts 2% 5% 25% 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 (a) Tot. est. bad allowance method and the aged uncollectible accounts receivable determined in (a). Assume the unadjusted balance in Allowance for Doubtful Accounts is a $7,000 credit. debts $25,190 (c) Of the above accounts, $2,600 is determined to be specifically uncollectible Prepare the journal entry to write off the uncollectible accounts (d) The company subsequently collects $1,200 on a specific account that had previously been determined to be uncollectible in (c). Prepare the journal entry (ies) necessary to restore the account and record the cash collection (e) Explain how establishing an allowance account satisfies the expense recognition principle

The following represents selected information taken from a company’s aging schedule to estimate uncollectible accounts receivable at year-end. Journalize transactions related to bad debts. (LO 2), AP 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 allowance method and the aged uncollectible accounts receivable determined in (a). Assume the unadjusted balance in Allowance for Doubtful Accounts is a $7,000 credit. (c) Of the above accounts, $2,600 is determined to be specifically uncollectible. Prepare the journal entry to write off the uncollectible accounts. (d) The company subsequently collects $1,200 on a specific account that had previously been determined to be uncollectible in (c). Prepare the journal entry(ies) necessary to restore the account and record the cash collection. (e) Explain how establishing an allowance account satisfies the expense recognition principle. (a) Tot. est. bad debts $25,190

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a
Number of Days Outstanding
Total 0-30 Mar-60 61-90 91-120 Over 120
Accounts receivable 305000 107000 60000 50000 38000 50000
% uncollectible 2% 5% 7.50% 10% 25%
Estimated bad debts 25190 2140 3000 3750 3800 12500
b
Bad Debts Expense 18190
       Allowance for Doubtful Accounts 18190
c
Allowance for Doubtful Accounts 2600
        Accounts Receivable 2600
d
Accounts Receivable 1200
       Allowance for Doubtful Accounts 1200
Cash 1200
        Accounts Receivable 1200
e
Establishing an allowance account helps in recording the bad debts expense in the period in which the sales occur so the expense recognition principle is satisfied

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