In: Accounting
At the end of Year 5, your consulting firm has been hired by a local service firm to help forecast future uncollectible accounts. For each of the prior five years, you ask the service firm to provide data on the age categories of year-end accounts receivable and the percentage of those accounts that eventually proved uncollectible. With these historical percentages, you estimate a trend line (dashed line) to predict the percentage of uncollectible accounts for Year 6, the upcoming year. Graphs were provided to management from your analysis of each of the three age categories, as well as balances of accounts receivable by age category at the end of Year 5 as follows:
Required:
1. Which age categories predicts the lowest percentage of uncollectible accounts for Year 6?
2. Which age categories predicts the highest percentage of uncollectible accounts for Year 6?
3. What is the dollar amount of accounts receivable that are 1-30 days past due at the end of year 5 (bottom graph)?
4. Calculate the total amount of estimated uncollectible accounts for Year 6 (Hint: Use all three age categories)?
5. Assume the balance of Allowance for Uncollectible Accounts is $4,850 (credit) at the end of Year 5 (before any adjustment). Prepare the adjusting entry at the end of Year 5.
6. Determine the amount of net accounts receivable the company would report at the end of Year 5.
1)
Year 6 | |
Not yet past due | 6% |
1-30 past due | 15% |
Over 30days past due | 43% |
For year 6 ,The Lowest percentage of Uncollectible accounts are "Not yet past due " which is 6% (from all first three graphs)
2)For year 6 ,The Highest percentage of Uncollectible accounts are "over 30 days past due " which is 43% (from all first three graphs)
3)Dollar Amount of Accounts receivable that are 1-30 days past due = $ 84000
4)
Amount of Receivable | * | % OF uncollectible account | = | Total amount of estimated Uncollectible accounts for year6 | |
Not yet past due | 128000 | 6% | 7680 | ||
1-30 past due | 84000 | 15% | 12600 | ||
Over 30days past due | 35000 | 43% | 15050 | ||
Total amount of estimated Uncollectible accounts for year 6 | 35330 |
5)
Date | Account title | Debit | credit |
Year 5 | Bad debt expense | 30480 | |
Allowance for Uncollectible account | 30480 | ||
[Being bad debt expense recorded :35330 Total estimated Uncollectible account -4850 credit balance in allowance account ) |
6)
Accounts Receivable (128000+84000+35000) | 247000 | |
less:Allowance for Uncollectible account | (35330) | |
Net Accounts receivable at year 5 | 211670 |