Question

Hovak Company has credit sales of \(4,500,000 for year 2017. At December 31, 2017, the company’s Allowance for Doubtful Accounts has an unadjusted debit balance of \)3,400. Hovak prepares a schedule of its December 31, 2017, accounts receivable by age. On the basis of past experience, it estimates the percent of receivables in each age category that will become uncollectible. This information is summarized here.

Required

2. Prepare the adjusting entry to record bad debts expense at December 31, 2017.

Short answer

Answer

The bad debt expense for December 31, 2017, will be $24,590.

Step-by-step solution

Step-by-Step SolutionStep 1: Meaning of Accounts Receivable

Account receivable is the amount of money that is receivable from the customer after being goods delivered.

Adjusting journal entry

Date	Particulars	Debit($)	Credit($)
Dec 31, 2017	Bad debt expense	24,590
	Allowance for doubtful accounts		24,590
	(To record the bad debt expense)

Calculation of the amount of allowance for doubtful accounts

Age	Amount($)	Percentage	Allowance for doubtful accounts($)
Not yet due	396,400	2.0%	7,928
1 to 30 days	277,800	4.0%	11,112
31 to 60 days	48,000	8.50%	4,080
61 to 90 days	6,600	39.0%	2,574
Over 90 days	2,800	82.0%	2,296
		Total	$27,990

$$\begin{gathered} Baddebtexpense=Allowancefordoubtfulaccounts-Unadjustedcreditbalance \\ =\$27,990-\$3,400 \\ =\$24,590 \end{gathered}$$