Adventure Company Uses the Aging of Accounts Receivable Method to Estimate

Essay

Adventure Company uses the aging of accounts receivable method to estimate bad debt expense. The balance of each account receivable is aged on the basis of three categories as follows: (1) 1-30 days old, (2)
30-90 days old, and (3) more than 90 days old. Experience has shown that for each age group, the average loss rate on the amount of the receivable due to uncollectibility is (1) 1%, (2) 15%, and (3) 40%, respectively. At December 31, 2011, the unadjusted balance in the Allowance for Doubtful Accounts was $100 (credit), and the total amounts receivable in each category were: (1) 1-30 days old, $65,000, (2) 30-90 days old, $10,000, and (3) more than 90 days old, $4,000. Calculate the balance that should be reported in the Allowance for Doubtful Accounts at December 31, 2011, and prepare the appropriate bad debt expense adjusting entry at December 31,
2011.