Sullivan Co.'s accounts receivable show the following balances by age:
Age of Receivable Balance
0-30 days $600,000
31-60 days 175,000
61-120 days 70,000
more than 120 days 10,000
The credit balance in the allowance for uncollectible accounts is $2,500. Sullivan Co. uses the following percentages to compute the estimated amounts of receivables that will eventually prove uncollectible: 0-30 days, 0.7%; 31-60 days, 1.2%; 61-120 days, 11%; and more than 120 days, 65%.
Prepare the adjusting journal entry.
The adjusting journal entry is needed to estimate the bad debt expense. The first step is to calculate the amount of receivables that will not be collected. For that we are given the percentages.
Uncollectible receivables = Total receivables X ...
The solution explains how to prepare the adjusting entry for bad debts