Reference no: EM132986830
Norwood Ltd analysed its accounts receivable balances at 31 December 2020 and prepared an ageing analysis of the account as listed below. The percentage of each aged group that have been proven uncollectable in the past are shown next to the aged balances.
Age of Accounts Estimated uncollectable % Balance
Current 2% $175,000
31-60 days past due 5% 80,400
61-90 days past due 20% 13,400
Over 90 days past due 50% 7,560
The company uses the allowances method to account for bad debts. On 31 December 2020 the debit balance of the Allowance for Doubtful Debts account was $5,200 before any adjustments.
Required:
Problem a) Determine the total estimated uncollectable accounts for Norwood Ltd at 31 December 2020
Problem b) Prepare the adjusting entry at 31 December 2020 to record the bad debts expense
Problem c) On the 6th December 2020, a customer whose account had been confirmed as uncollectable in November 2020 for $5,200 contacted Norwood Ltd to advise that she would now pay 50% of this outstanding amount. Prepare the journal entry to record the recovery of the customer's account
Problem d) Discuss the disadvantages of using the direct write-off method for reporting bad debts expense