Reference no: EM131794100
Innovative Tech Inc. (ITI) uses the percentage of credit sales method to estimate bad debts each month and then uses the aging method at year-end. During November, ITI sold services on account for $160,000 and estimated that 1/4 of one percent of those sales would be uncollectible. At its December 31 year-end, total Accounts Receivable is $80,100, aged as follows: (1) 1-30 days old, $66,000; (2) 31-90 days old, $11,000; and (3) more than 90 days old, $3,100. Experience has shown that for each age group, the average rate of uncollectibility is (1) 11 percent, (2) 22 percent, and (3) 44 percent, respectively. Before the end-of-year adjusting entry is made, the Allowance for Doubtful Accounts has a $1,150 credit balance at December 31.
Required:
1. Prepare the November adjusting entry for bad debts. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
2. Prepare a schedule to estimate an appropriate year-end balance for the Allowance for Doubtful Accounts.
3. Prepare the December 31 adjusting entry. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
4. Show how the various accounts related to accounts receivable should be shown on the December 31 balance sheet.
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