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Using an Aging Schedule to Account for Bad Debts Sparkle Jewels distributes fine stones. It sells...

Using an Aging Schedule to Account for Bad Debts

Sparkle Jewels distributes fine stones. It sells on credit to retail jewelry stores and extends terms that require the stores to pay in 60 days. For accounts that are not overdue, Sparkle has found that there is a 90% probability of collection. For accounts up to one month past due, the likelihood of collection decreases to 75%. If accounts are between one and two months past due, the probability of collection is 60%, and if an account is over two months past due, Sparkle Jewels estimates only a 40% chance of collecting the receivable.

On December 31, 2016, the credit balance in Allowance for Doubtful Accounts is $11,500. The amounts of gross receivables by age on this date are as follows:

Category Amount
Current $195,000
Past due:
    Less than one month 44,300
    One to two months 24,800
    Over two months 1,400

Required:

1. Prepare a schedule to estimate the amount of uncollectible accounts at December 31, 2016.

Sparkle Jewels
Aging Schedule to Account for Bad Debts
Category Amount Estimated Percent Uncollectible Estimated Amount Uncollectible
Current $195,000
Past due:
Less than one month 44,300 fill in the blank 6104da026070016_3% fill in the blank 6104da026070016_4
One to two months 24,800 fill in the blank 6104da026070016_5% fill in the blank 6104da026070016_6
Over two months 1,400 fill in the blank 6104da026070016_7% fill in the blank 6104da026070016_8
Totals $265,500 $fill in the blank 6104da026070016_9

2. On the basis of the schedule in part (1), prepare the journal entry on December 31, 2016, to estimate bad debts. Indicate the effect on financial statement items by selecting "–" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.

Journal Balance Sheet Income Statement
Stockholders’ Net
Date Description Debit Credit Assets = Liabilities + Equity Revenues – Expenses = Income
2016
Dec. 31
     

3. Show how accounts receivable would be presented on the December 31, 2016, balance sheet.

Sparkle Jewels
Partial Balance Sheet
Current Assets
  

Solutions

Expert Solution

1. Prepare a schedule to estimate the amount of uncollectible accounts at December 31, 2016.
Sparkle Jewels
Aging Schedule to Account for Bad Debts
Category Amount Estimated Percent Uncollectible Estimated Amount Uncollectible
Current $195,000 10.0% $19,500.0
Past due:
Less than one month 44,300 25.00% $11,075.0
One to two months 24,800 40.0% $9,920.0
Over two months 1,400 60.0% $840.0
Totals $265,500 $41,335
2. On the basis of the schedule in part (1), prepare the journal entry on December 31, 2016, to estimate bad debts. Indicate the effect on financial statement items by selecting "–" for decrease (or negative effect), "+" for increase (or positive effect) and "NE" for No Entry (or no effect) on the financial statement.
Journal Income Statement
Balance Sheet Stockholders’ Net
Date Description Debit Credit Assets = Liabilities + Equity Revenues – Expenses = Income
2016 Bad Debts Expense $   29,835.00 $ (29,835.00) $ (29,835.00)
Dec. 31              Allowance for Doubtful Accounts $                29,835.00
     To record estimated bad debts $41,335  less $11,500 currently in allowance account
3. Show how accounts receivable would be presented on the December 31, 2016, balance sheet.
Sparkle Jewels
Partial Balance Sheet
Current Assets
Accounts Receivable $265,500
Less: Allowance for Doubtful Accounts ($41,335)
Net Realizable Value $224,165


ekkarill92 answered 2 years ago
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