Question

Spade Agency separates its accounts receivable into three age groups for purposes of estimating the percentage of uncollectible accounts. In addition, the balance of Allowance for Uncollectible Accounts before adjustment is $1,000 (credit). Accounts not yet due = $25,000; estimated uncollectible = 4%. Accounts 1–60 days past due = $10,000; estimated uncollectible = 25%. Accounts more than 60 days past due = $5,000; estimated uncollectible = 50%. Required: 1. Compute the total estimated uncollectible accounts.

Answer 1

Answer:

The total estimated uncollectible debt is $6000 as computed below

Explanation:

The total estimated uncollectible debt is computed as follows:

Accounts not yet due              $25000*4%    $1000

Accounts 1-60 days past due $10000*25%     $2500

Accounts more than 60 days  $5000*50%    $2500

Total estimated uncollectible debt                  $6000

The necessary journal entry to record this estimate is shown below:

Dr bad debt expense                        $5000

Cr  Allowance for uncollectible debt           $5000

Even though $6000 is the estimated uncollectible, the implication is that the closing balance in allowance for uncollebtible debt should be $6000,since there is a credit of $1000 already in the account, the balance required to top it up to $6000 is $5000