Aging Analysis of Accounts Receivable
Response to the following problem:
Cowen's, a large department store located in a metropolitan area, has been experiencing difficulty in estimating its bad debts. The company has decided to prepare an aging schedule for its outstanding accounts receivable and estimate bad debts by the due dates of its receivables. This analysis discloses the following information:
|
Balance
|
Age of Receivable
|
Estimated Percentage Uncollectible
|
|
$193,000
|
Under 30 days
|
0.8%
|
|
114,000
|
30-60 days
|
2.0%
|
|
73,000
|
61-120 days
|
5.0%
|
|
41,000
|
121-240 days
|
20.0%
|
|
25,000
|
241-360 days
|
35.0%
|
|
19,000
|
Over 360 days
|
60.0%
|
|
$465,000
|
|
|
Required
1. Use the preceding analysis to compute the estimated amount of uncollectible receivables.
2. Prepare the journal entry to record Cowen's estimated uncollectibles, assuming the balance in the Allowance for Doubtful Accounts prior to adjustment is:
a. 0
b. $3,000 (debit)
c. $2,800 (credit)