Q1) Arias Company uses aging approach to evaluate bad debt expense. Balance of each account receivable is aged on basis of three time periods as follows: (1) not yet due $60,000, (2) up to 180 days past due $12,000, and (3) more than 180 days past due $4000. Experience has shown that for each age group average loss rate on the amount of receivables at year end due to non collectability is (1) 3 percent, (2) 15 percent and (3) 35 percent. At December 31, 2011(end of the current year) Allowance for Doubtful Accounts balance was $200 (credit) before end of period adjusting entry is made.
Questions:
1) Create the suitable bad debt expense adjusting entry for year 2011.
2) Illustrate how different accounts related to accounts receivable muts be shown on December 31, 2011 balance sheet.