Expert Answers

1. What are the essential features of the allowance method of accounting for bad debts?
2. Lauren Anderson cannot understand why the cash realized value does not decreass when an uncollectable account is written off under the allowance method. Clarify this point to Lauren.
3. Hachey Company has accounts receivables of $95, 000 at March 31, 2007. An analysis of the accounts shows these amounts. Prepare entries for recognizing accounts receivable.
(SO2)
Balance, March 31
Month of Sale. 2007. 2006
March. $65, 000. $75, 000
February. $12, 600. $8, 000
Dec.& Jan. $10, 100. $2, 400
Nov.& Oct. $7, 400. $1, 100
$95, 100. $86, 500

Credit terms are 2/10, n/30. At March 31, 2007, there is a $2, 200 credit balance in Allowance for Doubtful Accounts prior to adjustment. The company uses the percentage of receivables basis for estimating uncollectible accounts. The company’s estimates of bad debts are as shown:
Estimated Percentage
Age of Accounts Uncollectible
Current 2%
1-30 days past due 7
31-90 days past due 30
Over 90 days 50

Instructions:
(a)determine the total estimated uncollectibles
(b) prepare the adjusting entry at March 31, 2007, to record bad debts expenses.
(c) discuss the implications of the changes in the aging schedule from 2006-2007.

*Prepare a balance sheet presentation of receivables.*
Record the transactions in the general journal.