Innovative Tech Inc. (ITI) uses the percentage of credit sales method to estimat

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 $110,000 and estimated that 4 of one percent of those sales would be uncollectible. At its December 31 year- end, total Accounts Receivable is $94,400, aged as follows: (1) 1-30 days old, $79,000; (2) 31-90 days old, $11,000, and (3) more than 90 days old, $4,400. 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 $1,800 credit balance at December Required: . 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.) Journal entry worksheet Record the adjusting entry for bad debts as of November 30. Prepare a schedule to estimate an appropriate year-end balance for the Allowance for Doubtful Accounts.

Explanation / Answer

SOLUTION

SOLUTION-1

(A) Journal Entry-

(B)

(C) Journal Entry-

(D) Balance sheet (Partial)

Accounts title and Explanation Debit ($) Credit ($) Bad Debt Expense ($110,000 * 0.25%) 275 Allowance for doubtful accounts 275 (To record the November adjusting entry for bad debts)

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