Answer to Question #120931 in Accounting for Sam

Question

Innovations Corp (IC) uses the percentage of credit sales method to estimate bad debts each month and then uses the aging method at year-end. During November 2014, IC sold services on account for $116,000 and estimated that ½ of one percent of those sales would be uncollectable. At its December 31 year-end, total Accounts Receivable is $107,000, aged as follows: (1) 1 to 30 days old, $84,000; (2) 31 to 90 days old, $16,300; and (3) more than 90 days old, $6,700. Experience has shown that for each age group, the average rate of uncollectability is (1) 1 percent, (2) 15 percent, and (3) 40 percent, respectively. Before the end-of-year adjusting entry is made, the Allowance for Doubtful Accounts has a $2,680 credit balance at December 31, 2014.
1. Prepare the November 2014 adjusting entry for bad debts.
2. Prepare a schedule to estimate an appropriate year-end balance for the Allowance for Doubtful Accounts.
3. Prepare the December 31, 2014, adjusting entry.

Answer 1

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