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Horngren'S Financial And Managerial Accounting
Found in: Page 467

Short Answer

Applying the allowance method (aging-of-receivables) to account for Uncollectibles Surf and Sun had the following balances at December 31, 2018, before the year-end adjustments:

Accounts Receivable

81,000

Allowance for Bad Debts

Bal. $ 2,063

The aging of accounts receivable yields the following data:

Age of Accounts Receivable

0–60 Days

Over 60 Days

Total Receivables

Accounts Receivable

$ 78,000

$ 3,000

$ 81,000

Estimated percent uncollectible

*2%

* 23%

Requirements

1. Journalize Surf and Sun’s entry to record bad debts expense for 2018 using the aging-of-receivables method.

2. Prepare a T-account to compute the ending balance of Allowance for Bad Debts.

(1) Bad debts will be debited, and allowance for bad debts will be credited by $187, respectively.

(2) Ending balance for allowance for bad debts equals $2,250.

See the step by step solution

Step by Step Solution

Step 1: Definition of Aging-of-receivables:

Aging-of-receivables method computes bad debts expense by applying a different percentage for each aging category of accounts receivable.

Step 2: Journalize the transactions of Lake

Date

Account and explanation

Debit

Credit

2018

Bad Debts

$187

Allowance for Bad Debts

$187

(Recording of bad debts expense for the period)

Step 3: T-account of the ending balance of Allowance for Bad Debts

Allowance for Bad Debts

$2,063

Beg. Balance

$187

Adj.

$ 2,250

End. Balance

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