Carmack Company has credit sales of 2.6 million for the year 2011. On December 31, 2011, the

Carmack Company has credit sales of 2.6 million for the year 2011. On December 31, 2011, the company’s Allowance for Doubtful Accounts has an unadjusted credit balance of $13,400. Carmack prepares a schedule of it’s December 31, 2011, 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.

December 31, 2011

   

      Age of Accounts Receivable              Expected Percent Uncollectible

$730,000                                 Not yet due                                         1.25%

 354,000                                  1 to 30 days past due                           2.00

 76,000                                    31 to 60 days past due                          6.50

48,000                                      61-90 days past due                             32.75

12,000                                     Over 90 days past due                           68.00

 

Required

 

1. Estimate the required balance of the allowance for doubtful accounts at December 31, 2011, using the ading of accounts receivable method.

 

2. Prepare the adjusting entry to record bad debts expenses at December 31, 2011

 

ANALYSIS COMPONET

3. On June 30, 2012 Carmack Company concludes that a customer’s $3,750 receivable (created in 2011) is uncollectable and that the account should be written off. What effect will this action have on Carmack’s 2012 net income? Explain

   

     CHECK (2) Dr. Bad Debts Expense $31,625