Question

Learning Objective 4: Apply GAAP to uncollectible receivables at December 31, 2016, before any year-end adjustments, the Accounts Receivable balance of Haley Travel, Inc., is $400,000. The Allowance for Doubtful Accounts has a $19,600 credit balance. Haley Travel prepares the following aging schedule for Accounts Receivable:

Age of Accounts

Total Balance 1-30 Days 31-60 Days 61-90 Days Over 90 Days

$400,000 $180,000 $120,000 $80,000 $20,000

Estimated uncollectible 0.5% 5.0% 11.0% 50.0%

Requirements:

1. Based on the aging of Accounts Receivable, is the unadjusted balance of the allowance account adequate? Too high? Too low?

2. Make the entry required by the aging schedule. Prepare a T-account for the allowance.

3. Show how Haley Travel will report Accounts Receivable on its December 31 balance sheet

Solution:
	Req. 1
			1-30	31-60	61-90	Over 90	Total
			days	days	days	days	balance
	Est. % uncollectible		x .005	x .05	x .11	x .50
	Bal. in Allow. for Doubtful Accounts should be
			$ 0	$ 0	$ 0	$ 0	$ -
	Current balance
	Amount needed in adj. entry
	Req. 2
	Journal
	DATE	ACCOUNT TITLES AND EXPLANATION				DEBIT	CREDIT
	Dec. 31
							-
		Allowance for Doubtful Accounts
			Bal.
	Req. 3
	BALANCE SHEET
	Current assets:
		Cash					$ XX
		Short-term investments					XX
		Accounts receivable, net of allowance
		for doubtful accounts of $					*
	Or
	*Another way to report accounts receivable is
		Accounts receivable
		Less: Allowance for doubtful accounts