Innovative Tech Incorporated (ITI) has been using the percentage of credit sales method to estimate bad debts.
Question:
Innovative Tech Incorporated (ITI) has been using the percentage of credit sales method to estimate bad debts. During November, ITI sold services on account for $150,000 and estimated that 1/2 of 1 percent of those sales would be uncollectible.
Required:
Prepare the November adjusting entry for bad debts.
Starting in December, ITI switched to using the aging method. At its December 31 year-end, total Accounts Receivable is $83,500, aged as follows: (1) 1 to 30 days old, $70,000; (2) 31 to 90 days old, $10,000; and (3) more than 90 days old, $3,500. The average rate of uncollectibility for each age group is estimated to be (1) 10 percent, (2) 20 percent, and (3) 40 percent, respectively. Prepare a schedule to estimate an appropriate year-end balance for the Allowance for Doubtful Accounts.
Before the end-of-year adjusting entry is made, the Allowance for Doubtful Accounts has a $1,350 credit balance at December 31. Prepare the December 31 adjusting entry.
Show how the various accounts related to accounts receivable should be shown on the December 31 balance sheet.