AFM123 Study Guide - Accounts Receivable
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Jarden Company has credit sales of $2,800,000 for year 2017. On December 31, 2017, the companyâs Allowance for Doubtful Accounts has an unadjusted credit balance of $16,232. Jarden prepares a schedule of its December 31, 2017, 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, 2017 Accounts Receivable | âAge of Accounts Receivable | âExpected Percent Uncollectible |
$560,000 | Not yet due | 0.85% |
224,000 | 1 to 30 days past due | 1.60 |
44,800 | 31 to 60 days past due | 6.10 |
22,400 | 61 to 90 days past due | 30.75 |
4,480 | Over 90 days past due | 64.00 |
1. Estimate the required balance of the Allowance for Doubtful Accounts at December 31, 2017, using the aging of accounts receivable method.
âACCOUNTS RECEIVABLE | âPERCENT UNCOLLECTIBLE (#.##%) | âESTIMATED UNCOLLECTIBLE | ||||
âNot due: | X | ââ= | ||||
â1 to 30: | âX | = | ||||
31 to 60: | âX | = | ||||
â61 to 90: | âX | = | ||||
âOver 90: | X | = |
âESTIMATED BALANCE OF ALLOWANCE FOR UNCOLLECTIBLES: __________ CREDIT OR DEBIT? _________
2. Prepare the adjusting entry to record bad debts expense at December 31, 2017.
Record the estimated bad debts.
âDATE | âGENERAL JOURNAL | âDEBIT | âCREDIT |
âDec 31 | |||
From the inception of operations to December 31, 2020, Metlock Corporation provided for uncollectible accounts receivable under the allowance method. The provisions are recorded, based on analyses of customers with different risk characteristics. Bad debts written off were charged to the allowance account; recoveries of bad debts previously written off were credited to the allowance account, and no year-end adjustments to the allowance account were made. Metlock’s usual credit terms are net 30 days.
The balance in Allowance for Doubtful Accounts was $114,400 (Cr.) on January 1, 2020. In 2020, credit sales totaled $7,920,000, the provision for doubtful accounts was determined to be $158,400, $79,200 of bad debts were written off, and recoveries of accounts previously written off amounted to $13,200. Metlock installed a computer system in November 2020, and the aging of accounts receivable was prepared for the first time as of December 31, 2020. A summary of the aging is as follows.
Classification by Month of Sale | Balance in Each Category | Estimated % Uncollectible |
November - December 2020 | $950,400 | 2% |
July - October | $572,000 | 10% |
January - June | $369,600 | 25% |
Prior to 1/1/20 | $132,000 | 80% |
$2,024,000 |
Based on the review of the collectibility of the account balances in the “prior to 1/1/20” aging category, additional receivables totaling $52,800 were written off as of December 31, 2020. The 80% uncollectible estimate applies to the remaining $79,200 in the category. Effective with the year ended December 31, 2020, Metlock adopted a different method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable.
Prepare a schedule analyzing the changes in Allowance for Doubtful Accounts for the year ended December 31, 2020. Show supporting computations in good form. (Hint: In computing the 12/31/20 allowance, subtract the $52,800 write-off.)
Required information
Problem 9-3A Aging accounts receivable and accounting for bad debts LO P2, P3
[The following information applies to the questions displayed below.]
Jarden Company has credit sales of $3,100,000 for year 2017. On December 31, 2017, the companyâs Allowance for Doubtful Accounts has an unadjusted credit balance of $19,564. Jarden prepares a schedule of its December 31, 2017, 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, 2017 Accounts Receivable | Age of Accounts Receivable | Expected Percent Uncollectible | ||
$ | 620,000 | Not yet due | 0.85 | % |
248,000 | 1 to 30 days past due | 1.60 | ||
49,600 | 31 to 60 days past due | 6.10 | ||
24,800 | 61 to 90 days past due | 30.75 | ||
4,960 | Over 90 days past due | 64.00 | ||
Problem 9-3A Part 1
Required:
1. Estimate the required balance of the Allowance for Doubtful Accounts at December 31, 2017, using the aging of accounts receivable method.
Problem 9-3A Part 2
2. Prepare the adjusting entry to record bad debts expense at December 31, 2017.