Innovative Tech Inc. (ITI) uses the percentage of credit sales method to estimat
ID: 2463288 • 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 2013, 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, 2013.
Prepare the November 2013 adjusting entry for bad debts. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
Prepare a schedule to estimate an appropriate year-end balance for the Allowance for Doubtful Accounts.
Prepare the December 31, 2013, adjusting entry. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
Required: 1.Prepare the November 2013 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
Answer:1 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 2013, ITI sold services on account for $160,000 and estimated that 1/2 of one percent of those sales would be uncollectible.
Dr Bad debts expense 800
Cr Allowance for Doubtful Accounts 800
Answer:2
1-30 days old, $67,000; 11%; $7370
31-90 days old, $10,000; 22%; $2200
more than 90 days old, $3200; 44%; $1,408
Total estimated to be uncollectable $10978
ADA to have a credit balance of $10978, but your ADA already has a credit balance of $1,200, so you need to "top-up" with $9778.
Answer:3
Dr bad debts expense 9778
Cr Allowance for Doubtful Accounts 9778
You want your ADA to have a credit balance of $3,850, but your ADA already has a credit balance of $1,600, so you need to "top-up" with $2,250