Chao Corporation uses an aging method to estimate uncollectible accounts. As of December 31, they had $40,000 not yet due with a 1% expected loss, $20,000 that was 1-60 days past due with a 4% expected loss, and $4,000 over 60 days past due with an 8% expected loss. The allowance account had a credit balance of $400 before adjustment.

1. Chao Corporation uses the accounts receivable aging method to account for Uncollectible
Accounts Expense.
As of December 31, Chao's accountant prepared the following data about ending receivables:
$40,000 was not yet due (1 percent expected not to be collected), $20,000 was 1-60 days past
due (4 percent expected not to be collected), and $4,000 was over 60 days past due (8 percent
expected not to be collected).
At December 31, Allowance for Uncollectible Accounts had a credit balance prior to adjustment
of $400.P
1. Prepare Chao's end-of-period adjustment for estimated uncollectible accounts. Also prepare
the entry that would have been made had the credit balance instead been a debit balance.
Solution
Date
Description
Debit
Credit
Dec. 31
Uncollectible Accounts Expense
1,120
Allowance for Uncollectible Accounts
1,120
Entry assuming $400 credit balance.

2. [($40,000
Date Description Debit Credit
Dec. 31 Uncollectible Accounts Expense 1,120
Allowance for Uncollectible Accounts 1,120
Entry assuming $400 credit balance.
[($40,000