Computing Bad Debt Expense Using Aging Analysis
Gary’s 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) not yet due, $16,000, (2) up to 120 days past due, $5,500, and (3) more than 120 days past due, $2,500. Experience has shown that for each age group, the average loss rate on the amount of the receivables at year-end due to uncollectability is (1) 2 percent, (2) 14 percent, and (3) 35 percent, respectively. At December 31, 2011 (end of the current year), the Allowance for Doubtful Accounts balance is $900 (credit) before the end-of-period adjusting entry is made.
Required:
What amount should be recorded as Bad Debt Expense for the current year?