Innovative Tech Inc. (ITI) uses the percentage of credit sales method to estimat
ID: 2445630 • Letter: I
Question
Innovative Tech Inc. (ITI) uses the percentage of credit sales method to estimate bad debts each month and then uses the aging method at year-end. During November, ITI sold services on account for $160,000 and estimated that 1/2 of one percent of those sales would be uncollectible. At its December 31 year-end, total Accounts Receivable is $80,200, aged as follows: (1) 1–30 days old, $67,000; (2) 31–90 days old, $10,000; and (3) more than 90 days old, $3,200. Experience has shown that for each age group, the average rate of uncollectibility is (1) 11 percent, (2) 22 percent, and (3) 44 percent, respectively. Before the end-of-year adjusting entry is made, the Allowance for Doubtful Accounts has a $1,200 credit balance at December 31.
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1.Record the adjusting entry for bad debts as of November 30.
Innovative Tech Inc. (ITI) uses the percentage of credit sales method to estimate bad debts each month and then uses the aging method at year-end. During November, ITI sold services on account for $160,000 and estimated that 1/2 of one percent of those sales would be uncollectible. At its December 31 year-end, total Accounts Receivable is $80,200, aged as follows: (1) 1–30 days old, $67,000; (2) 31–90 days old, $10,000; and (3) more than 90 days old, $3,200. Experience has shown that for each age group, the average rate of uncollectibility is (1) 11 percent, (2) 22 percent, and (3) 44 percent, respectively. Before the end-of-year adjusting entry is made, the Allowance for Doubtful Accounts has a $1,200 credit balance at December 31.
Please answer -->
1.Record the adjusting entry for bad debts as of November 30.
Innovative Tech Inc. (ITI) uses the percentage of credit sales method to estimate bad debts each month and then uses the aging method at year-end. During November, ITI sold services on account for $160,000 and estimated that 72 of one percent of those sales would be uncollectible. At its December 31 year-end total Accounts Receivable is $80,200, aged as follows: (1) 1-30 days old, $67,000; (2) 31-90 days old, $10,000; and (3) more than 90 days old, $3,200. Experience has shown that for each age group, the average rate of uncollectibility is (1) 11 percent, (2) 22 percent, and (3) 44 percent, respectively. Before the end-of-year adjusting entry is made, the Allowance for Doubtful Accounts has a $1,200 credit balance at December 31 Required: 1. Prepare the November adjusting entry for bad debts. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)Explanation / Answer
Accounts receivable are $160,000 at the end of the year, and 1/2% of 1% of accounts receivable will become uncollectible, so you want your Allowance for doubtful accounts account to have a balance of $160,000 x 1% * .5% = $800
(a) Prepare the adjusting journal entry to record bad debts. Allowance for doubtful accounts has a credit balance of $1,200.
As there is already excess balance in allowance for doubtful debt so no adjusting entry is required.