Innovative Tech Inc. (ITI) has been using the percentage of credit sales method to estimate bad debts. During November, ITI sold services on account for $100,000 and estimated that ½ of 1 percent of those sales would be uncollectible. Required: Prepare the November adjusting entry for bad debts. Starting in December, ITI switched to using the aging method. At its December 31 year-end, total Accounts Receivable is $89,000, aged as follows: (1) 1–30 days old, $75,000; (2) 31–90 days old, $10,000; and (3) more than 90 days old, $4,000. The average rate of uncollectibility for each age group is estimated to be (1) 10 percent, (2) 20 percent, and (3) 40 percent, respectively. Prepare a schedule to estimate an appropriate year-end balance for the Allowance for Doubtful Accounts.

Note: ITI sold $100,000 worth of services. [tex]\frac{1}{2}[/tex] of 1% of those sales services would be uncollectible. It means, $100,000 × [tex]\frac{1}{2}[/tex] × 1% = $50,000 × 0.01 = $500 is bad debt expense. Since the company uses the percentage of credit sales method, so, they use sales amount to find the bad debt expense. Since it is written-off, Allowance for doubtful accounts is credit.

Requirement 2

The following schedule is an appropriate balance for the allowance for doubtful accounts:

Age Amount Percentage Total Amount

1–30 days old $75,000 10% $7,500

31–90 days old $10,000 20% $2,000

90 days+ $4,000 40% $1,600

Allowance for Doubtful Accounts = $11,100

abiolataiwo2015 abiolataiwo2015 · Answer 2 · 2022-03-29T15:20:47+02:00

The November adjusting entry for bad debts is: Debit Bad debt expense $500; Credit Allowance for doubtful accounts $500.

Adjusting entry

a. November

Debit Bad debt expense $500

Credit Allowance for doubtful accounts $500

($100,000×1/2×1%)

b. Year-end balance for the Allowance for Doubtful Accounts.

Age Amount Percentage Total Amount

1–30 days old $75,000 × 10% = $7,500

31–90 days old $10,000 ×20% =$2,000

90 days+ $4,000 × 40% = $1,600

Allowance for Doubtful Accounts $11,100

Inconclusion the November adjusting entry for bad debts is: Debit Bad debt expense $500; Credit Allowance for doubtful accounts $500.

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