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Daley Company prepared the following aging of receivables analysis at December 31. Days Past Due Total 0 1 to 30 31 to 60 61 to 90 Over 90 Accounts receivable $ 630,000 $ 408,000 $ 102,000 $ 48,000 $ 30,000 $ 42,000 Percent uncollectible 1 % 2 % 5 % 7 % 10 % Exercise 7-9 Percent of receivables method LO P3 a. Estimate the balance of the Allowance for Doubtful Accounts assuming the company uses 6% of total accounts receivable to estimate uncollectibles, instead of the aging of receivables method. b. Prepare the adjusting entry to record Bad Debts Expense using the estimate from part a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $13,200 credit. c. Prepare the adjusting entry to record bad debts expense using the estimate from part a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $2,200 debit.

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Answer:

A. $14,820

B. Dr Bad Debt Expense $1,620

Cr Allowance for Doubtful Accounts $1,620

C. Dr Bad Debt Expense $17,020

Cr Allowance for Doubtful Accounts $17,020

Explanation:

a. Calculation to Estimate the balance of the Allowance for Doubtful Accounts

Using this formula

Balance of the Allowance for Doubtful Accounts=Account Receivable *Percentage Uncollectible

Let plug in the formula

Account Receivable* Percentage Uncollectible = Balance of the Allowance for Doubtful Accounts

Not due $408,000*1%=$4,080

1 to 30 $102,000*2%=$2,040

31 to 60 $48,000*5%=$2,400

61 to 90 $30,000*7%=$2,100

Over 90 $42,000*10%=$4,200

Balance of the Allowance for Doubtful Accounts $14,820

($4,080+$2,040+$2,400+$2,100+$4,200)

b. Preparation of the adjusting entry to record Bad Debts Expense

Dr Bad Debt Expense $1,620

($14,820-$13,200)

Cr Allowance for Doubtful Accounts $1,620

(Being to record Bad Debts Expense)

c. Preparation of the adjusting entry to record bad debts expense

Dr Bad Debt Expense $17,020

($14,820+$2,200)

Cr Allowance for Doubtful Accounts $17,020

(Being to record Bad Debts Expense)

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