Hovak Company has credit sales of $4,500,000 for year 2018. At December 31, 2018, the company?s Allowance for Doubtful Accounts has an unadjusted debit balance of $3,400. Hovak prepares a schedule of its December 31, 2018, 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, 2018, using the aging of accounts receivable method.

2. Prepare the adjusting entry to record bad debts expense at December 31, 2018.

3. On July 31, 2019, Hovak concludes that a customer?s $3,455 receivable (created in 2018) is uncollectible and that the account should be written off. What effect will this action have on Hovak?s 2019 net income? Explain.

Transcribed Image Text:

Expected Percent Uncollectible December 31, 2018, Accounts Receivable $396,400 277,800 48,000 Age of Accounts Receivable 2 Not yet due 1 to 30 days past due 31 to 60 days past due 61 to 90 days past due Over 90 days past due 2.0% 4.0 8.5 39.0 82.0 6,600 2,800