Problem 2: Creative Co. uses the allowance method to estimate uncollectible accounts receivable. The computer produced the following aging of the accounts receivable at year end:

Number of Days Outstanding

Total 030 3160 6190 91120

Accounts receivable $210,000 $120,000 $55,000 $20,000 $15,000

Estimated % uncollectible 1% 7% 12% 25%

Estimated uncollectible accounts

The unadjusted balance in Allowance for Doubtful Accounts is a credit of $5,000.

Instructions

Complete the aging schedule and calculate the total estimated uncollectible accounts from the above information.

Record the bad debt adjusting entry using the above information.

In the following year, $12,200 of the outstanding accounts receivable is determined to be uncollectible. Record the write off of the uncollectible accounts.

The company collects $3,400 of the $12,200 of accounts receivable that were determined to be uncollectible in (c). No further amounts are expected to be collected. Prepare the journal entry (or entries) to record the collection of this amount.

Comment on how your answers to parts (a) to (d) would change if Creative Co. used a percentage of total accounts receivable of 8% instead of aging the accounts receivable.