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Innovative Tech Inc. (ITI) has been using the percentage of credit sales method to estimate...

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Accounting

Innovative Tech Inc. (ITI) has been using the percentage of credit sales method to estimate bad debts. During November, ITI sold services on account for $110,000 and estimated that 1/4 of 1 percent of those sales would be uncollectible. Required: Prepare the November adjusting entry for bad debts. Starting in December, ITI switched to using the aging method. At its December 31 year-end, total Accounts Receivable is $94,400, aged as follows:

(1) 130 days old, $79,000;

(2) 3190 days old, $11,000; and (3) more than 90 days old, $4,400.

The average rate of uncollectibility for each age group is estimated to be

(1) 11 percent,

(2) 22 percent, and (3) 44 percent, respectively.

Prepare a schedule to estimate an appropriate year-end balance for the Allowance for Doubtful Accounts. Before the end-of-year adjusting entry is made, the Allowance for Doubtful Accounts has a $1,800 credit balance at December 31. Prepare the December 31 adjusting entry. Show how the various accounts related to accounts receivable should be shown on the December 31 balance sheet.

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