The aging schedule at December 31, 2020, for Gidget Inc. shows the following breakdown of total accounts receivable. Status Amount Not past due $455,000 Past due 1-30 days 108,000 Past due 31-60 days 55,000 Past due over 60 days 14,000 Total $632,000 The company considers the risk of credit losses to be similar within the aging pools and estimates the following credit loss rates by pool: not past due, 0.5%; past due 1-30 days, 1%; past due 31-60 days, 2%; and past due over 60 days, 8%. The Allowance for Doubtful Accounts has a $3,300 credit balance before adjustment. What amount is debited to Bad Debt Expense to adjust the Allowance for Doubtful Accounts to its desired ending balance on December 31, 2020?

Question

Alaina Carlson

Business

28 June, 14:53

The aging schedule at December 31, 2020, for Gidget Inc. shows the following breakdown of total accounts receivable. Status Amount Not past due $455,000 Past due 1-30 days 108,000 Past due 31-60 days 55,000 Past due over 60 days 14,000 Total $632,000 The company considers the risk of credit losses to be similar within the aging pools and estimates the following credit loss rates by pool: not past due, 0.5%; past due 1-30 days, 1%; past due 31-60 days, 2%; and past due over 60 days, 8%. The Allowance for Doubtful Accounts has a $3,300 credit balance before adjustment. What amount is debited to Bad Debt Expense to adjust the Allowance for Doubtful Accounts to its desired ending balance on December 31, 2020?

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Conner Oconnell · Answer 1

The amount to be debited to bad debt expense to adjust for allowance for doubtful accounts is $2,275, recorded as follows:

Debit Bad debt expense $2,275

Credit Allowance for doubtful accounts $2,275

(To recognize bad debt expense for the year)

Explanation:

The aging schedule of Gidget Inc. as at December 31, 2020

Status Amount Credit loss rates Estimated Bad debt

Not past due $455,000 0.5% $2,275

Past due 1 - 30 days $108,000 1% $1,080

Past due 31 - 60 days $55,000 2% $1,100

Past due over 60 days $14,000 8% $1,120

Total $632,000 $5,575

Since the balance in allowance for doubtful accounts is $3,300 credit, the bad debt expense would therefore be $2,275 ($5,575 - $3,300).