On December 31, Jarden Co.'s Allowance for Doubtful Accounts has an unadjusted credit balance of $15,500. Jarden prepares a schedule of its December 31 accounts receivable by age. Accounts Receivable Age of Accounts Receivable Expected Percent Uncollectible
$880,000 Not yet due 1.25%
352,000 1 to 30 days past due 2.00
70,400 31 to 60 days past due 6.50
35,200 61 to 90 days past due 32.75
14,080 Over 90 days past due 68.00

Required:
a. Compute the required balance of the Allowance for Douitful Accounts at December 31 using an aging of accounts receivable.
b. Prepare the adjusting entry to record bad debts expense at December 31.
c. On June 30 of the next year, Jarden concludes that a customer's $4,750 receivable is uncollectible and the account is written off. Does this write-off directly affect Jarden's net income?

(a) The required balance in allowance for doubtful debt account is $43,718.4.

(b) The adjusting entry to record bad debts expense at December 31 is:

Debit Bad debt expense ($43,718.4 - $15,500) $28,218.4

Credit Allowance for doubtful accounts $28,218.4

(To record bad debt expense)

(c) The write-off does not affect Jarden's net income since it would be between allowance for doubtful accounts and the accounts receivable.

Explanation:

An allowance for doubtful accounts is an estimate of the accounts receivable that is deemed uncollectible.

(a) Computation of the required balance of the Allowance for Doubtful Accounts at December 31 using an aging of accounts receivable

Accounts Rec.  Age Accounts Rec.       %Uncollectible Allowance

$880,000         Not yet due                     1.25                 $11,000

352,000           1 to 30 days past due     2.00                   7,040

70,400             31 to 60 days past due   6.50                   4,576

35,200             61 to 90 days past due   32.75                11,528

14,080              Over 90 days past due   68.00               9,574.4

$1,351,680                                                                      $43,718.4

d. the economy will face inflation.