Pearson Company uses the allowance method to estimate uncollectible accounts receivable. The company produced the following information from aging its accounts receivable at year end:

The unadjusted balance in Allowance for Doubtful Accounts is a debit of $3,000.

Instructions

a. Complete the aging schedule and calculate the total estimated uncollectible accounts.

b. Record the bad debt adjusting entry using the information determined in part (a).

c. In the following year, $18,000 of the outstanding accounts receivable is determined to be uncollectible.

Record the write off of the uncollectible accounts.

d. The company collects $4,500 of the $18,000 of accounts that was determined to be uncollectible in part (c). The company also expects to collect an additional $1,000. Record the journal entry (or entries) to restore the accounts receivable and the cash collected. Collection of the $1,000 is expected in the near future.

e. Explain how using the allowance method matches expenses with revenues.

f. Explain how using the allowance method values Accounts Receivable at the carrying amount on the balance sheet.

What are the advantages and disadvantages to the company of using an aging schedule to estimate uncollectible accounts, as compared with estimating uncollectible accounts as 10% of total accounts receivable?

Transcribed Image Text:

Number of Days Outstanding Total 0-30 31-60 61-90 91-120 Accounts receivable $640,000 $360,000 $140,000 $100,000 $40,000 Estimated % uncollectible 2% 5% 10% 30% Estimated uncollectible accounts