P6-4 Determining Bad Debt Expense Based on Aging Analysis LO6-3 [The following i
ID: 2612878 • Letter: P
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P6-4 Determining Bad Debt Expense Based on Aging Analysis LO6-3 [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 uncollectability is (a) 9 percent, (b) 13 percent, and (c) 33 percent, respectively. At December 31, 2014 (end of the current accounting year), the Accounts Receivable balance was $51,500, and the Allowance for Doubtful Accounts balance was $1,090 (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: B. Brown—Account Receivable Date Explanation Debit Credit Balance 3/11/2013 Sale 13,900 13,900 6/30/2013 Collection 4,200 9,700 1/31/2014 Collection 3,100 6,600 D. Donalds—Account Receivable Date Explanation Debit Credit Balance 2/28/2014 Sale 21,800 21,800 4/15/2014 Collection 7,100 14,700 11/30/2014 Collection 4,300 10,400 N. Napier—Account Receivable Date Explanation Debit Credit Balance 11/30/2014 Sale 8,000 8,000 12/15/2014 Collection 2,300 5,700 S. Strothers—Account Receivable Date Explanation Debit Credit Balance 3/2/2012 Sale 4,300 4,300 4/15/2012 Collection 4,300 0 9/1/2013 Sale 9,200 9,200 10/15/2013 Collection 3,800 5,400 2/1/2014 Sale 21,500 26,900 3/1/2014 Collection 6,100 20,800 12/31/2014 Sale 3,800 24,600 T. Thomas—Account Receivable Date Explanation Debit Credit Balance 12/30/2014 Sale 4,200 4,200 .
Required: 1. Compute the total accounts receivable in each age category
not yet due ----------------
up to one year past due ------------------------
greater than one year past due -----------------
. 2. Compute the estimated uncollectible amount for each age category and in total.
not yet due ----------------
up to one year past due---------------
more than one year past due -----------
Explanation / Answer
Computation of total accounts receivable in each age category
B - Brown Account Receivable
Amount
Not yet due
upto one year past due
More than one year past due
$ 4,900.00
D - Donalds - Account Receivable
Amount
Not yet due
upto one year past due
$ 11,500.00
More than one year past due
N - Napier - Account Receivable
Amount
Not yet due
$ 6,600.00
upto one year past due
More than one year past due
S - Strothers - Account Receivable
Amount
Not yet due
$ 3,000.00
upto one year past due
$ 20,700.00
More than one year past due
T -Thomas - Account Receivable
Amount
Not yet due
$ 5,900.00
upto one year past due
More than one year past due
Required 2
Computation of estimated uncollectible amount for each category
Amount
Not yet due (@8%)
$ 1,240.00
upto one year past due (@11%)
$ 3,542.00
More than one year past due (@35%)
$ 1,715.00
TOTAL
$ 6,497.00
Required 3
Journal entry for bad debt expense in books of Blue skies equipment company at 31st December 2014
Transaction
Particulars
Debit
Credit
1
Bad debt expese
$ 1,240.00
Allowance for doubtful accounts
$ 1,240.00
(Being bad debt expense @ 8% on not yet due balance)
$ 99.2
Bad debt expese
$ 3,542.00
Allowance for doubtful accounts
$ 3,542.00
(Being bad debt expense @ 11% on upto to one year past due)
$ 389.62
Bad debt expese
$ 1,715.00
Allowance for doubtful accounts
$ 1,715.00
(Being bad debt expense @ 35% on more than one year past due)
$ 600.25
Blue skies equipment company
Extract of Income statement
Bad debt expense
$ 6,497.00
Sales
$ 91,700.00
Required 5
Blue skies equipment company
Extract of Balance sheet
as at 31st December 2014
Debtors
$ 52,600.00
Less - Allowance for doubtful accounts
$ (1,060.00)
51540
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