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14 April, 18:23

Crimson Inc. recorded credit sales of $750,000, of which $600,000 is not yet due, $100,000 is past due for up to 180 days, and $50,000 is past due for more than 180 days. Under the aging of receivables approach, Crimson Inc. expects it will not collect 1% of the amount not yet due, 10% of the amount past due for up to 180 days, and 20% of the amount past due for more than 180 days. The allowance account had a debit balance of $1,000 before adjustment. After adjusting for bad debt expense, what is the ending balance of the allowance account?

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  1. 14 April, 18:58
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    The ending balance of the allowance account is $26,000.

    Explanation:

    Aging Amount Loss Percent Uncollectible Amount

    Not yet due $600,000 1% $6,000

    180 days $100,000 10% $10,000

    > 180 days $50,000 20% $10,000

    Total $750,000 $26,000

    The allowance account had a debit balance of $1,000 before adjustment. In order to reinstate the account to $26,000, the adjustment to bad debt expense becomes $1,000 + $26,000 = $27,000, which is recorded as follows:

    Debit Bad debt expense $27,000

    Credit Allowance for doubtful accounts $27,000

    (To record bad debt expense during the year)
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