Question $6$: Austin Coffee Co is in its first year of operations. In year $1,$ Austin Coffee Co has

$60\%$ of sales in cash, $40\%$ on credit, and total sales for the year are $$2,000,000.$ Austin Coffee

Co uses the percentage of sales method to estimate bad debt expense during the year and uses a

historical rate of $2\%.$ During the year, there are $$10,000$ in write$-$offs. At the end of the year,

Austin Coffee Co adjusts the allowance to an appropriate balance using the AR Aging method.

Below showing the aging of outstanding gross receivables at year$-$end. Note, the total

outstanding amount of accounts receivables is less than total credit sales, as some customers

have paid or had their account written$-$off.

Age

Not yet due

$0-30$ days past due

$30-60$ days past due

$60-90$ days past due

$90-120$ days past due

Over $120$ days past due

Total

Loss Estimate

$1\%$

$2\%$

$4\%$

$20\%$

$40\%$

$90\%$

$\frac{AR\text{G}\text{r}\text{o}\text{s}\text{s}}{\text{\$}200,000}$

$$150,000$

$$50,000$

$$5,000$

$$3,000$

$$2,000$

$$410,000$

Question $6,$ Part $1$: Provide the initial entry to record bad debt expense using the percentage of

sales method.

Question $6,$ Part $2$: Provide the entry to write$-$off uncollectable accounts.

Question $6,$ Part $3$: What is the allowance balance after the two entries above, but before using

the AR aging method?

Question $6,$ Part $4$: What should the allowance be at the end of the year according to the AR

aging method, and what entry should the firm record to adjust this balance?