At December 31, the Azuza Company had a balance of $754,000 in its Accounts Receivable account and a credit balance of $9,000 in the Allowance for Doubtful Accounts account. The company aged its accounts as follows:
Current $608,000
0–60 days past due 88,000
61–180 days past due 40,000
Over 180 days past due 18,000
$754,000
In the past, the company has experienced credit losses as follows: one percent of current balances, five percent of balances 0–60 days past due, 20 percent of balances 61–180 days past due, and 40 percent of balances over six months past due. The company bases its allowance for doubtful accounts on an aging analysis of accounts receivable.
Required
a. Prepare the adjusting entry to record the allowance for doubtful accounts for the year.
b. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear on the December 31 balance sheet.
a.
General Journal
Date Description Debit Credit
Dec.31 Bad Debts ExpenseAllowance for Doubtful AccountsAccounts Receivable Bad Debts ExpenseAllowance for Doubtful AccountsAccounts Receivable To record allowance for credit losses. b. Do not use negative signs with your answers.
Current Assets: Accounts ReceivableLess: Allowance for Doubtful Accounts Accounts ReceivableLess: Allowance for Doubtful Accounts