70.2K

Verified Solution

Link Copied!

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) 4 percent, (b) 17 percent, and (c) 32 percent, respectively.

At December 31, 2014 (end of the current accounting year), the Accounts Receivable balance was $50,900, and the Allowance for Doubtful Accounts balance was $940 (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. BrownAccount Receivable
Date	Explanation	Debit	Credit	Balance
3/11/2013	Sale	14,200		14,200
6/30/2013	Collection		3,600	10,600
1/31/2014	Collection		3,400	7,200

D. DonaldsAccount Receivable
Date	Explanation	Debit	Credit	Balance
02/28/2014	Sale	21,800		21,800
04/15/2014	Collection		8,400	13,400
11/30/2014	Collection		5,700	7,700

N. NapierAccount Receivable
Date	Explanation	Debit	Credit	Balance
11/30/2014	Sale	9,300		9,300
12/15/2014	Collection		2,500	6,800

S. StrothersAccount Receivable
Date	Explanation	Debit	Credit	Balance
03/02/2012	Sale	4,400		4,400
04/15/2012	Collection		4,400	0
09/01/2013	Sale	9,700		9,700
10/15/2013	Collection		3,700	6,000
02/01/2014	Sale	21,200		27,200
03/01/2014	Collection		7,400	19,800
12/31/2014	Sale	3,800		23,600

T. ThomasAccount Receivable
Date	Explanation	Debit	Credit	Balance
12/30/2014	Sale	5,600		5,600
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. 4. Show how the amounts related to accounts receivable should be presented on the 2014 income statement and balance sheet.

Answer & Explanation Solved by verified expert

See Answer