At December 31, Hovak Co.’s Allowance for Doubtful Accounts has an unadjusted debit balance of $3,400. Hovakprepares a schedule of its December 31 accounts receivable by age.

Required

1. Compute the required balance of the Allowance for Doubtful Accounts at December 31 using an aging of accounts receivable.

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

3. On July 31 of the following year, Hovak concludes that a customer’s $3,455 receivable is uncollectible and the account is written off. Does this write-off directly affect Hovak’s net income?

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Accounts Recelvable Age of Accounts Receivable 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 Expected Percent Uncollectible $396,400 277,800 48,000 6,600 2.0% 4.0 8.5 39.0 2,800 82.0