Innovative Tech Inc. (ITI) uses the percentage of credit sales
method to estimate bad debts each month and then uses the aging
method at year-end. During November, ITI sold services on account
for $120,000 and estimated that 3/4 of one percent of those sales
would be uncollectible. At its December 31 year-end, total Accounts
Receivable is $99,800, aged as follows: (1) 1–30 days old, $83,000;
(2) 31–90 days old, $12,000; and (3) more than 90 days old, $4,800.
Experience has shown that for each age group, the average rate of
uncollectibility is (1) 12 percent, (2) 24 percent, and (3) 48
percent, respectively. Before the end-of-year adjusting entry is
made, the Allowance for Doubtful Accounts has a $2,000 credit
balance at December 31. Required: 1. Prepare the November adjusting
entry for bad debts. (If no entry is required for a
transaction/event, select “No Journal Entry Required” in the first
account field.) 2. Prepare a schedule to estimate an appropriate
year-end balance for the Allowance for Doubtful Accounts. 3.
Prepare the December 31 adjusting entry. (If no entry is required
for a transaction/event, select “No Journal Entry Required” in the
first account field.) 4. Show how the various accounts related to
accounts receivable should be shown on the December 31 balance
sheet.