[The following information applies to the questions displayed below.] Blue Skies

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[The following information applies to the questions displayed below.]

Blue Skies Equipment Company uses the aging approach to estimate bad debt expense at the end of each accounting year. Credit sales occur frequently on terms n/60. The balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, (2) up to one year past due, and (3) more than one year past due. Experience has shown that for each age group, the average loss rate on the amount of the receivable at year-end due to uncollectibility is (a) 9 percent, (b) 7 percent, and (c) 32 percent, respectively.

At December 31, 2014 (end of the current accounting year), the Accounts Receivable balance was $50,800, and the Allowance for Doubtful Accounts balance was $970 (credit). In determining which accounts have been paid, the company applies collections to the oldest sales first. To simplify, only five customer accounts are used; the details of each on December 31, 2014, follow:

1. Compute the total accounts receivable in each age category.

2. Compute the estimated uncollectible amount for each age category and in total.

3. Prepare journal entry for bad debt expense at December 31, 2014. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

4. Show how the amounts related to accounts receivable should be presented on the 2014 income statement and balance sheet. (Amounts to be deducted should be indicated by a minus sign.)

B. Brown—Account Receivable Date Explanation Debit Credit Balance 3/11/2013 Sale 13,200 13,200 6/30/2013 Collection 4,700 8,500 1/31/2014 Collection 4,700 3,800

Explanation / Answer

1 & 2) Accounts Receivables and age-wise category: Amount due Uncollectible Not Due: 9% N.Napier 5400 S.Strothers 3500 T.Thomas 5600 Total 14500 1305 Due less than one year: 7% D.Donalds 10500 S.Strothers 22000 Total 32500 2275 Due over more than one year: 32% B. Brown 3800 Total 3800 1216 Total Uncollectible amount 50800 4796 3) Bad debt expense journal entry: Debit $ Credit $ Bad Debt Expense 3826 Allowance for Doubtful Accounts 3826 (4796 - 970) 4) Treatment in Income Statement and balance sheet 2014: Income Statement : Expense : Bad Debt : 3826 Balance Sheet : Assets : Accounts Receivable : $50800 Liabilities : Allowance for Doubtful Accounts : $4796

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