Dhaliwal Digital categorizes its accounts receivable into three age groups for purposes of estimating its allowance for uncollectible accounts. Accounts not yet due = $270,000; estimated uncollectible = 5%. Accounts 1â€“45 days past due = $37,500; estimated uncollectible = 10%. Accounts more than 45 days past due = $15,000; estimated uncollectible = 15%. Before recording any adjustments, Dhaliwal has a debit balance of $67,500 in its allowance for uncollectible accounts. Required: 1. Estimate the appropriate 12/31/2021 balance for Dhaliwalâ€™s allowance for uncollectible accounts. 2. What journal entry should Dhaliwal record to adjust its allowance for uncollectible accounts?

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Tundexi Tundexi · Answer 1 · 2020-11-05T15:43:32+01:00

Answer:

1. Age group = A

Amount of Accounts Receivable = B

Estimated % uncollectible = C

Estimated Amount Uncollectible = D

A B C D(B*C)

Not yet due $270,000 5% $13,500

1-45 days $37,500 10% $3,750

Over 45 days $15,000 15% $2,250

Estimated amount required in Allowance $19,500

for Doubtful Debts (Credit Balance)

Current Balance in Allowance for $67,500

Doubtful Debts (Debit Balance)

Required charge to Bad debts Expense $87,000

for the year

Thus, the Estimated 12/31/2021 balance for Dhaliwal’s allowance for uncollectible accounts (Credit Balance).

2. Journal Entry

Date Accounts and Explanation Debit Credit

Dec. 31 Bad debts Expense $87,000

Allowance for doubtful accounts $87,000

(To record the estimated bad debts)