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Crimson Inc. recorded credit sales of $750,000, of which $600,000 is not yet due, $100,000 is past due for up to 180 days, and $50,000 is past due for more than 180 days. Under the aging of receivables approach, Crimson Inc. expects it will not collect 1% of the amount not yet due, 10% of the amount past due for up to 180 days, and 20% of the amount past due for more than 180 days. The allowance account had a debit balance of $1,000 before adjustment. After adjusting for bad debt expense, what is the ending balance of the allowance account?

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Answer:

The ending balance of the allowance account is $26,000.

Explanation:

Aging                   Amount       Loss Percent        Uncollectible Amount

Not yet due        $600,000               1%                $6,000

180 days              $100,000             10%                $10,000

> 180 days           $50,000              20%               $10,000

Total                    $750,000                                    $26,000

The allowance account had a debit balance of $1,000 before adjustment. In order to reinstate the account to $26,000, the adjustment to bad debt expense becomes $1,000 + $26,000 = $27,000, which is recorded as follows:

Debit Bad debt expense                                         $27,000

Credit Allowance for doubtful accounts                $27,000

(To record bad debt expense during the year)

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