Reference no: EM13492658

Carmack Company has credit sales of $2.6 million for year 2011. On December 31, 2011, the company's Allowance for Doubtful Accounts has an unadjusted credit balance of $13,400. Carmack prepares a schedule of its Dec 31, 2011, accounts receivable by age. On the basis of past experience, it estimates the percent of receivables in each age category that will become uncollectible. This information is summarized here.

December 31, 2011 Accounts Receivable	Age of Accounts Receivable	Expected Percent Uncollectible
$730,000	Not yet due	1.25%
$354,00	1 to 30 days past due	2.00%
$76,000	31 to 60 days past due	6.50%
$48,000	61 to 90 days past due	32.75%
$12,000	Over 90 days past due	68.00%

 

Required

1.      Estimate the required balance of the Allowance for Doubtful Accounts at December 31, 2011, using the aging of accounts receivable method.

2.      Prepare the adjusting entry to record bad debts expense at December 31, 2011.

Analysis Component

3.      On June 30, 2012, Carmack Company concludes that a customer's $3,750 receivable (created in 2011) is uncollectible and that the account should be written off. What effect will this action have on Carmack's 2012 net income? Explain.