ECON 420- Blue Skies Equipment Company uses

by | Mar 18, 2020 | Uncategorized

  

Question:

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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) 3 percent, (b) 8 percent, and (c) 31 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 $1,040 (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 15,000 15,000
6/30/2013 Collection 4,900 10,100
1/31/2014 Collection 3,800 6,300

D. Donalds—Account Receivable
Date Explanation Debit Credit Balance
2/28/2014 Sale 22,300 22,300
4/15/2014 Collection 7,700 14,600
11/30/2014 Collection 4,600 10,000

N. Napier—Account Receivable
Date Explanation Debit Credit Balance
11/30/2014 Sale 9,200 9,200
12/15/2014 Collection 2,400 6,800

S. Strothers—Account Receivable
Date Explanation Debit Credit Balance
3/2/2012 Sale 5,300 5,300
4/15/2012 Collection 5,300 0
9/1/2013 Sale 10,900 10,900
10/15/2013 Collection 3,500 7,400
2/1/2014 Sale 22,100 29,500
3/1/2014 Collection 8,200 21,300
12/31/2014 Sale 3,100 24,400

T. Thomas—Account Receivable
Date Explanation Debit Credit Balance
12/30/2014 Sale 4,900 4,900

1. Total accounts receivable:

not due yet:

up to one year past due:

more than one year past due:

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

not due yet:

up to one year past due:

more than one year past due:

total:

3. Show how the amounts related to accounts receivable should be presented on the 2014 income statement and balance sheet.
  

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