Hovak Company has credit sales of $ 4.5 million for year 2013. At December 31, 2013, the company’s Allowance for Doubtful Accounts has an unadjusted debit balance of $ 3,400. Hovak prepares a schedule of its December 31, 2013, accounts receivable by age. On the basis of past experience, it estimates the percent of receivables in each age category that will become uncollectible. This information is summarized here.
Required 1. Compute the required balance of the Allowance for Doubtful Accounts at December 31, 2013, using the aging of accounts receivable method. 2. Prepare the adjusting entry to record bad debts expense at December 31, 2013. Analysis Component 3. On July 31, 2014, Hovak concludes that a customer’s $ 3,455 receivable (created in 2013) is uncollectible and that the account should be written off. What effect will this action have on Hovak’s 2014 net income?Explain.