1. Casilda Company uses the aging approach to estimate bad debt expense. The balance of each
account receivable is aged on the basis of three time periods as follows: (1) not yet due, $51,500,
(2) up to 180 days past due, $14,200, and (3) more than 180 days past due, $4,100. Experience
has shown that for each age group, the average loss rate on the amount of the receivables at year-
end due to uncollectability is (1) 2 percent, (2) 11 percent, and (3) 31 percent, respectively. At
December 31, 2013 (end of the current year), the Allowance for Doubtful Accounts balance is
$500 (credit) before the end-of-period adjusting entry is made.what is bad debt expense?what is
the allowance for dobtful accounts?
Solution
The average loss calculated in all three cases are;
In case more than 180 days past due, $1271 will be consider as bad debts. Thus $1271is bad
debts.
Total amount in all three cases is $3863. Thus amount of Allowance for doubtful allowance will
be calculated as follows;
Amount of Bad Debts......................................................$1271
Add: Allowance for doubtful debts...............................$3863
Less: Existing Allowance for doubtful debts..............$500
Thus Now amount of Allowance for doubtful debts will be (1271 +3863 - 500) = $4663.