Your Company Has $3,000,000 in Credit Sales During 2011

Essay

Your company has $3,000,000 in credit sales during 2011. The beginning balance of the allowance for doubtful accounts is $3,000 and the company writes off $700 in bad debts during the year.
a. Calculate the estimated doubtful accounts using the aging of accounts receivable method given that
$1,600,000 of the credit sales are not yet due (estimated that 0.5% are uncollectible), $349,000 are 1-60 days
late (estimated that 1.25% are uncollectible) and $12,000 are over 60 days late (estimated that 30% are uncollectible).
b. Using the assumptions in the initial problem statement above, and using the aging of accounts method, calculate the bad debt expense. Show your calculation in a T-account for Allowance for Bad Debts and present the journal entry to record bad debt expense.
c. Calculate the estimated bad debt expense using the percentage of credit sales method and prepare the journal
entry. Historically your company is unable to collect 1% of credit sales.