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26 December, 20:54

Brown Cow Dairy uses the aging approach to estimate Bad Debt Expense. The balance of each account receivable is aged on the basis of three time periods as follows: (1) 1-30 days old, $12,000; (2) 31-90 days old, $5,000; and (3) more than 90 days old, $3,000. For each age group, the average loss rate on the amount of the receivable due to uncollectibility is estimated to be (1) 5 percent, (2) 10 percent, and (3) 20 percent, respectively. At December 31 (end of the current year), the Allowance for Doubtful Accounts balance was $800 (credit) before the end-of-period adjusting entry is made. Required: Prepare a schedule to estimate an appropriate year-end balance for the Allowance for Doubtful Accounts. What amount of Bad Debt Expense should be recorded on December 31? If the unadjusted balance in the Allowance for Doubtful Accounts was a $600 debit balance, what amount of Bad Debt Expense should be recorded on December 31?

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  1. 26 December, 22:33
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    Solution and Explanation:

    Age of the Amount Estimated Estimated

    Receivables Uncollectibles Uncollectible Amounts

    1-30 days old $12,000 3% $360

    31-90 days old $5,000 15% $750

    more than 90

    days old $3,000 30% $900

    Estimated year end Balances for Uncollectible Amounts $2,010

    Bad Debt Expense for the year : Estimated Uncollectible Amount - Existing Credit Balance in the Allowance Account

    Bad Debt Expense : $2,010 minus $800 = 1210

    If the existing balance is Debit Balance of $600.

    Bad Debt Expense : $2,010 plus 600 = $2,610.
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