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A firm has accounts receivable of $90,000 and a debit balance of $900 in the Allowance for Doubtful Accounts. Two-thirds of the accounts receivable are current and one-third is past due. The firm estimates that two percent of the current accounts and five percent of the past due accounts will prove to be uncollectible. The adjusting entry to provide for the bad debts expense under the aging method should be for what amount

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Answer:

$3,600

Explanation:

The computation of the amount required for bad debt expense is shown below:

Allowance for Doubtful Accounts balance required is

= ($90,000 × 2 ÷ 3 × 2%) + ($90,000 × 1 ÷ 3 × 5%)

= $1,200 + $1,500

= $2,700

And, the debit balance of allowance for doubtful debts is $900

So, the amount required for the bad debt expense is

= $2,700 + $900

= $3,600

We simply added the debit balance and the allowance for doubtful account required balance

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