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Problem $1$

Anna Hernandez is an accountant at Axis Corporation, a specialty retailer. She was investigating

why the incidence of bad debts in $2021$ had come in at a higher rate than that provided for in

the bad debt allowance at the start of the year. She had commissioned a study of write$-$off $\%$ by

receivables$-$age categories using monthly data over $2021.$ The results of this study along with

details of opening and closing receivables $($provided below$)$ confirmed her fears. Actual bad

debts $($write$-$offs$)$ during $2021$ were higher for all but one of the age categories.

Anna decided that the closing allowance would need to reflect the exact incidence $\%$ of bad

debts for each aging category that the monthly analysis had revealed. Sales for $2021$ was $

$22509$ thousand.

a$)$ Determine the closing bad debt allowance for $2021.$

b$)$ Using the allowance created in $(1)$ above, show T$-$accounts of Gross Receivables and

Allowance for Bad Debts during $2021.$ Note total bad debt write$-$off during $2021$ was $

$1041$ thousand.

c$)$ Determine the bad debt expense in $ and as $\%$ of sale for $2021.$

d$)$ Show how Accounts Receivables amounts will be shown on the balance sheet during

$2020$ and $2021.$

e$)$ Comment on the differences between the $2020$ and $2021$ receivables, with particular

emphasis on whether receivables quality had deteriorated in $2021.$

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