Adjusting entry to record allowance for doubtful accounts

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Reference no: EM131214371

While performing an audit on your client you note the following balances in the client's aging of accounts receivable 91+ days bucket:

Astor Company: 100,000

Brooks Company: 5,000

Chatham Company: 45,000

Total receivables as of the balance sheet date are 1,000,000. The client historically has recorded an allowance for doubtful accounts at 5% of gross accounts receivable. The previous three years the 91+ A/R aging bucket has been 200,000, 300,000 and 25,000. The previous three years the allowance for doubtful accounts have been 50,000, 75,000 and 6,250 (25% of the 91+ AR aging bucket balances) The client has not yet recorded an allowance for doubtful accounts for the current year.

Based on the data available, propose an adjusting entry to record the allowance for doubtful accounts and show your calculations.

Reference no: EM131214371

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