Reference no: EM13865662
Below is the "totals" section of XYZ Corporation's full ageing schedule. XYZ will be using this information to estimate uncollectible accounts receivable at year-end.
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Number of Days Outstanding
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Total
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0-30
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31-60
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61-90
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91-120
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Over 120
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Accounts receivable
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$ 375,000
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$ 220,000
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$ 90,000
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$ 30,000
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$ 20,000
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$ 15,000
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% uncollectible
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1%
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4%
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5%
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9%
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20%
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Estimate bad debts
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Instructions
(a) Calculate the total estimated bad debts based on the above information.
(b) Prepare the year-end adjusting journal entry to record the bad debts using the allowance method and the aged uncollectible accounts receivable determined in (a). Assume the current balance in Allowance for Doubtful Accounts is a $3,000 credit.
(c) Prepare the year-end adjusting journal entry to record the bad debts using the allowance method and the aged uncollectible accounts receivable determined in (a). Assume the current balance in Allowance for Doubtful Accounts is a $500 debit.
(d) Of the above accounts, $1,800 is determined to be specifically uncollectible. Prepare the journal entry to write off the uncollectible accounts.
(e) The company subsequently collects $700 on a specific account that had previously been determined to be uncollectible in (d). Prepare the journal entry(ies) necessary to restore the account and record the cash collection.
(f) In your own words, explain how establishing an allowance account satisfies the expense recognition principle.