Dhaliwal Digital categorizes its accounts receivable into three age groups for purposes of estimating its allowance for uncollectible accounts. Accounts not yet due = $270,000; estimated uncollectible = 5%. Accounts 1–45 days past due = $37,500; estimated uncollectible = 10%. Accounts more than 45 days past due = $15,000; estimated uncollectible = 15%. Before recording any adjustments, Dhaliwal has a debit balance of $67,500 in its allowance for uncollectible accounts. Required: 1. Estimate the appropriate 12/31/2021 balance for Dhaliwal’s allowance for uncollectible accounts. 2. What journal entry should Dhaliwal record to adjust its allowance for uncollectible accounts?

1. Age group = A

Amount of Accounts Receivable = B

Estimated % uncollectible = C

Estimated Amount Uncollectible = D

    A                        B                  C                         D(B*C)

Not yet due       $270,000        5%                      $13,500

1-45 days           $37,500           10%                     $3,750

Over 45 days     $15,000           15%                     $2,250

Estimated amount required in Allowance        $19,500

for Doubtful Debts (Credit Balance)

Current Balance in Allowance for                      $67,500

Doubtful Debts (Debit Balance)                                          

Required charge to Bad debts Expense            $87,000

for the year

Thus, the Estimated 12/31/2021 balance for Dhaliwal’s allowance for uncollectible accounts (Credit Balance).

2.                                     Journal Entry

Date       Accounts and Explanation            Debit      Credit  

Dec. 31   Bad debts Expense                      $87,000    

                      Allowance for doubtful accounts         $87,000  

              (To record the estimated bad debts)

c is the correct answer.