Question

Outlaw Bike Co. is a wholesaler of motorcycle supplies. An aging of the company’s accounts receivable on December 31, and a historical analysis of the percentage of uncollectible accounts in each age category are as follows:
Age Class Balance Percent Uncollectible
Not past due $892,000 3/4 %
1–30 days past due 285,000 1
31-60 days past due 101,000 8
61–90 days past due 63,000 16
91–180 days past due 43,100 50
Over 180 days past due 17,700 80
Total $1,401,800
Required:
1. Assume that the allowance for doubtful accounts for Outiaw Bike Co. had a debit balance of $5,140 as of December 31. Journalize the adjusting entry for uncollectible accounts as of December 31 Dec. 31

Answer 1

Answer:

The adjusting entry for uncollectible accounts as of December 31:

Debit Bad debts expense $68,550

Credit Allowance for doubtful accounts $68,550

Explanation:

Estimated uncollectible = $892,000 x 3/4% + $285,000 x 1% + $101,000 x 8% + $63,000 x 16% + $43,100 x 50% + $17,700 x 80% = $6,690 + $2,850 + $8,080 + $10,080 + $21,550 + $14,160 = $63,410

The company uses aging of accounts receivable to estimate uncollectible. The allowance for doubtful accounts had a debit balance of $5,140 as of December 31.

Bad debts expense = $63,410 + $5,140 = $68,550

The adjusting entry for uncollectible accounts:

Debit Bad debts expense $68,550

Credit Allowance for doubtful accounts $68,550