Morse Company
Morse Company uses the aging method to estimate bad debts?
Immediately before recording its adjusting entries, Morse wrote off $5,000 of accounts receivable, leaving a $1200 credit balance in its allowance for doubtful accounts. The following is the aging schedule prepared on December 31, 2011 after the write-offs.
Category…. Not past due……………………Amount….. $140,000….% Un collectible….2%
Category…..1 – 45 days……………………Amount 30000…..% Un collectible….6%
Category…..Beyond 45 days past due….Amount……..$10,000……% Un collectible….20%
a.After recording bad debt expense, what is the final balance in the allowance for doubtful accounts at December 31, 2011?
b.What effect will bad debts have on Morse’s reported net income for the period ended December 31, 2011? You may ignore income tax effects.
c.At what amount should the receivables be reported on the balance sheet at December 31, 2011?
Not past due ………….. Amount $140,000….% Uncollectible….2% = $2,800
1 – 45 days…………….. Amount $30,000…..% Uncollectible….6% = $1,800
> 45 days past due…. Amount $10,000……% Uncollectible….20% = $2,000
Total receivables ………. ………. $180,000; Total allowance needed $6,600
a. After recording bad debt expense, what is the final balance in the allowance for doubtful accounts at December 31, 2011?
You started off with a balance of $1,200, but you want the balance to be $6,600, so you need to take up bad debts of $5,400, after which the final bal. in the ADA = $6,600
b. What effect will bad debts have on Morse’s reported net income for the period ended December 31, 2011?
The bad debts will decrease net income by $5,400
c. At what amount should the receivables be reported on the balance sheet at December 31, 2011?
Accounts receivable $180,000
less ADA $6,600
Net AR $173,400