Exercise 5-68 Bad Debt Expense: Aging Method Glencoe Supply had the following ac
ID: 2330263 • Letter: E
Question
Exercise 5-68 Bad Debt Expense: Aging Method Glencoe Supply had the following accounts receivable aging schedule at the end of a recent year Proportion Expected to Default Accounts Allowance Receivable Age Amount Required Current 1-30 days past due 31-45 days past due 46-90 days past due 91-135 days past due Over 135 days past due $310,500 47,500 25,000 12,800 6,100 4,200 0.005 0.01 0.13 0.20 0.25 0.60 $1,553 475 3,250 2,560 1,525 2,520 $11,883 The balance in Glencoe's allowance for doubtful accounts at the beginning of the year was $58,620 (credit). During the year, accounts in the total amount of $62,400 were written off Required: 1. Determine bad debt expenseExplanation / Answer
Answer
---Bad Debt Expense will be calculated in following manner:
Allowance account - Beginning balance
$ 58,620.00
Credit
Amount written off during year
$ 62,400.00
Allowance account - Unadjusted Ending balance
$ (3,780.00)
Debit
Required adjusted ending balance [Equal to Allowance required]
$ 11,883.00
Credit
Bad Debt Expense
$ 15,663.00
[$ 3780 for clearing out debit balance, and $ 11883 for making the balance $ 11,883 Credit
Hence, Bad Debt Expense = $ 15,663
Note: When Allowance method is used, Bad Debt expenses are recorded by crediting Allowance account and NOT Accounts receivables account. Hence, the correct entry with correct amount will be:
Account title
Debit
Credit
Bad Debt Expense
$ 15,663.00
Allowance for Doubtful Account
$ 15,663.00
(bad Debt expense recorded)
Allowance account - Beginning balance
$ 58,620.00
Credit
Amount written off during year
$ 90,000.00
Allowance account - Unadjusted Ending balance
$ (31,380.00)
Debit
Required adjusted ending balance [Equal to Allowance required]
$ 11,883.00
Credit
Bad Debt Expense
$ 43,263.00
[$ 31,380 for clearing out debit balance, and $ 11,883 for making the balance $ 11,883 Credit]
--If $ 90,000 would have been written off, Bad Debt Expense would have been $ 43,263 [ie Increased by $ 27,600]
--Bad Debt expense would have changed by $ 27,600
Allowance account - Beginning balance
$ 58,620.00
Credit
Amount written off during year
$ 62,400.00
Allowance account - Unadjusted Ending balance
$ (3,780.00)
Debit
Required adjusted ending balance [Equal to Allowance required]
$ 11,883.00
Credit
Bad Debt Expense
$ 15,663.00
[$ 3780 for clearing out debit balance, and $ 11883 for making the balance $ 11,883 Credit