Blue Skies Equipment Company uses the aging approach to estimate bad debt expens
ID: 2426347 • Letter: B
Question
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 uncollectability is (a) 7 percent, (b) 8 percent, and (c) 32 percent, respectively.
At December 31, 2014 (end of the current accounting year), the Accounts Receivable balance was $52,400, and the Allowance for Doubtful Accounts balance was $930 (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 recievable in each category
2. Compute the estimated uncollectible amount for each age category and in total.
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 uncollectability is (a) 7 percent, (b) 8 percent, and (c) 32 percent, respectively.
Explanation / Answer
1. Compute the total accounts receivable in each category:
Details
Amount
Not yet due
(7600+2500+5800) From N, S, and T
$ 15,900
Up to one year past due
(7600+16400) from D and S
$ 24,000
More than one year past due
(7100+5400) from B and S
$ 12,500
Total Accounts receivable
$ 52,400
2. Compute the estimated uncollectible amount for each age category and in total:
Details
Amount
Not yet due
($15,900 × 7%)
$ 1,113
Up to one year past due
($24,000 × 8%)
$ 1,920
More than one year past due
($12,500 × 32%)
$ 4,000
The Allowance for Doubtful Accounts balance was $930
$ 930
Total uncollectible amount
$ 7,963
Details
Amount
Not yet due
(7600+2500+5800) From N, S, and T
$ 15,900
Up to one year past due
(7600+16400) from D and S
$ 24,000
More than one year past due
(7100+5400) from B and S
$ 12,500
Total Accounts receivable
$ 52,400
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