Question

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) 9 percent, (b) 12 percent, and (c) 35 percent, respectively.

At December 31, 2019 (end of the current accounting year), the Accounts Receivable balance was $49,900 and the Allowance for Doubtful Accounts balance was $1,000 (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, 2019, follow:

B. Brown—Account Receivable
Date	Explanation	Debit	Credit	Balance
03/11/2018	Sale	14,200		14,200
06/30/2018	Collection		4,300	9,900
01/31/2019	Collection		4,700	5,200

D. Donalds—Account Receivable
Date	Explanation	Debit	Credit	Balance
02/28/2019	Sale	21,100		21,100
04/15/2019	Collection		8,500	12,600
11/30/2019	Collection		4,500	8,100

N. Napier—Account Receivable
Date	Explanation	Debit	Credit	Balance
11/30/2019	Sale	8,900		8,900
12/15/2019	Collection		1,900	7,000

S. Strothers—Account Receivable
Date	Explanation	Debit	Credit	Balance
03/02/2017	Sale	5,300		5,300
04/15/2017	Collection		5,300	0
09/01/2018	Sale	10,500		10,500
10/15/2018	Collection		3,700	6,800
02/01/2019	Sale	22,300		29,100
03/01/2019	Collection		7,200	21,900
12/31/2019	Sale	3,200		25,100

T. Thomas—Account Receivable
Date	Explanation	Debit	Credit	Balance
12/30/2019	Sale	4,500		4,500

Required:

1. Compute the estimated uncollectiable amount for each age category and in total

Not yet Due______

Up to one year past due______

More than one year past due____

Total accounts recieveable___

2) Journal Entry

3)Partial Income Statement & Partial Balance sheet

*Show work*

Answer 1

STATUS	Brown	Donalds	Napier	Strothers	Thomas	TOTAL
NOT YET DUE	0	0	7000	3200	4500	14700
Up to one year past due	0	8100	0	21900	0	30000
More than one year past due	5200	0	0	0	0	5200
Total accounts recieveable	5200	8100	7000	25100	4500	49900
PROVIONS RATE	35%	12%	9%	9%,12%	9%
PROVIONS AMOUNT	1820	972	630	2916	405	6743
				(3200*9%+21900*12%)

2)JOURNAL ENTRY

Allowance for Doubtful Accounts DR 6743

TO Brown ACCOUNT 1820

  TO Brown ACCOUNT 972

  TO Brown ACCOUNT 630

TO Brown ACCOUNT 2916

TO Brown ACCOUNT 405

(BEING PROVIONS CREATED FOR THE YEAR 2019)

3)PARTIAL INCOME STATEMENT

EXTRACTS OF INCOME STATEMENT

INCOME

SALES 38900

EXPENSES

Allowance for Doubtful Accounts 6743

PROFIT/LOSS $$$$

4)PARTIAL BALANCE SHEET

EXTRACTS OF BALANCE SHEET

ASSETS

ACCOUNTS RECEIVABLE 49900

LIABILITIES

OPENING BALANCE OF Allowance for Doubtful Accounts 1000

ADD:-CREATED DURING THE YEAR (6743)

CLOSING BALANCE (5743)

<ie it is an asset creation>