Temper Company has credit sales of $3.10 million for year 2010.Temper estimates that 2% of accounts receivable will remain uncollectible.Historically,.9% of sales have been uncollectible.On December 31,2010,the company's Allowance for Doubtful Accounts has an unadjusted credit balance of $2,575.Temper prepares a schedule of its December 31,2010,accounts receivable by age.Based on past experience,it estimates the percent of receivables in each age category that will become uncollectible.This information is summarized here:
$$\begin{array} { c l c }
\begin{array} { c }
\text { December 31,2010 } \
\text { Accounts Receivable }
\end{array} & { \begin{array} { c }
\text { Age of Accounts } \
\text { Receivable }
\end{array} } & \begin{array} { c }
\text { Expected Percent } \
\text { Uncollectible }
\end{array} \
\$ 620,000 & \text { Not yet due } & 1.05 \% \
248,000 & 1 \text { to 30 days past due } & 1.80 \
49,600 & \text { 31 to 60 days past due } & 6.30 \
24,800 & \text { 61 to 90 days past due } & 31.75 \
4,960 & \text { Over 90 days past due } & 66.00
\end{array}$$
Assuming the company uses the percent of accounts receivable method,what is the amount that Temper will enter as the Bad Debt Expense in the December 31 adjusting journal entry?
A)$18,947.20
B)$16,372.20
C)$23,024.40
D)$27,900.00
E)$21,522.20

Question

Temper Company has credit sales of $3.10 million for year 2010.Temper estimates that 2% of accounts receivable will remain uncollectible.Historically,.9% of sales have been uncollectible.On December 31,2010,the company's Allowance for Doubtful Accounts has an unadjusted credit balance of $2,575.Temper prepares a schedule of its December 31,2010,accounts receivable by age.Based on past experience,it estimates the percent of receivables in each age category that will become uncollectible.This information is summarized here:
$$\begin{array} { c l c } 
\begin{array} { c } 
\text { December 31,2010 } \
\text { Accounts Receivable }
\end{array} &  { \begin{array} { c } 
\text { Age of Accounts } \
\text { Receivable }
\end{array} } & \begin{array} { c } 
\text { Expected Percent } \
\text { Uncollectible }
\end{array} \
\$ 620,000 & \text { Not yet due } & 1.05 \% \
248,000 & 1 \text { to 30 days past due } & 1.80 \
49,600 & \text { 31 to 60 days past due } & 6.30 \
24,800 & \text { 61 to 90 days past due } & 31.75 \
4,960 & \text { Over 90 days past due } & 66.00
\end{array}$$ 
Assuming the company uses the percent of accounts receivable method,what is the amount that Temper will enter as the Bad Debt Expense in the December 31 adjusting journal entry?
A)$18,947.20
B)$16,372.20
C)$23,024.40
D)$27,900.00
E)$21,522.20

Quizplus · Accepted Answer

Step 1: Calculate the estimated amount of uncollectible receivables based on past experience

0-30 days: $1,550,000 x 0.5% = $7,750
31-60 days: $450,000 x 1% = $4,500
61-90 days: $280,000 x 3% = $8,400
Over 90 days: $120,000 x 6% = $7,200

Total estimated uncollectible receivables = $27,850

Step 2: Calculate the required balance for the Allowance for Doubtful Accounts

Required balance = 2% x Accounts Receivable = 2% x ($3.10 million x 0.98) = $60,760.40

Step 3: Calculate the amount of adjustment needed

Adjustment needed = Required balance - Unadjusted balance = $60,760.40 - $2,575 = $58,185.40

Step 4: Calculate the Bad Debt Expense

Bad Debt Expense = Estimated uncollectible receivables - Existing balance in Allowance for Doubtful Accounts

Bad Debt Expense = $27,850 - $2,575 = $25,275

Therefore, the amount that Temper will enter as the Bad Debt Expense in the December 31 adjusting journal entry is $16,372.20 (answer choice B).

Temper Company Has Credit Sales of $3 Assuming the Company Uses the Percent of Accounts Receivable Method,what