Question

P6-3 Determining Bad Debt Expense Based on Aging Analysis LO6-2

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

At December 31, 2014 (end of the current accounting year), the Accounts Receivable balance was $53,800, and the Allowance for Doubtful Accounts balance was $980 (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. Brown—Account Receivable
Date	Explanation	Debit	Credit	Balance
3/11/2013	Sale	14,300		14,300
6/30/2013	Collection		3,400	10,900
1/31/2014	Collection		3,800	7,100

D. Donalds—Account Receivable
Date	Explanation	Debit	Credit	Balance
02/28/2014	Sale	21,700		21,700
04/15/2014	Collection		8,500	13,200
11/30/2014	Collection		4,400	8,800

N. Napier—Account Receivable
Date	Explanation	Debit	Credit	Balance
11/30/2014	Sale	9,600		9,600
12/15/2014	Collection		1,300	8,300

S. Strothers—Account Receivable
Date	Explanation	Debit	Credit	Balance
03/02/2012	Sale	5,600		5,600
04/15/2012	Collection		5,600	0
09/01/2013	Sale	10,600		10,600
10/15/2013	Collection		3,600	7,000
02/01/2014	Sale	22,400		29,400
03/01/2014	Collection		8,300	21,100
12/31/2014	Sale	3,300		24,400

T. Thomas—Account Receivable
Date	Explanation	Debit	Credit	Balance
12/30/2014	Sale	5,200		5,200

rev: 10_18_2016_QC_CS-66542

References

Section BreakP6-3 Determining Bad Debt Expense Based on Aging Analysis LO6-2

4.

value:
15.00 points

Required information

P6-3 Part 1

Required:

1. Compute the total accounts receivable in each age category.

References

eBook & Resources

WorksheetDifficulty: 2 Medium

P6-3 Part 1Learning Objective: 06-02 Estimate, report, and evaluate the effects of uncollectible accounts receivable (bad debts) on financial statements.

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5.

value:
15.00 points

Required information

P6-3 Part 2

2. Compute the estimated uncollectible amount for each age category and in total.

References

eBook & Resources

WorksheetDifficulty: 2 Medium

P6-3 Part 2Learning Objective: 06-02 Estimate, report, and evaluate the effects of uncollectible accounts receivable (bad debts) on financial statements.

Check my work

6.

value:
15.00 points

Required information

P6-3 Part 3

3. Prepare journal entry for bad debt expense at December 31, 2014. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

References

eBook & Resources

WorksheetDifficulty: 2 Medium

P6-3 Part 3Learning Objective: 06-02 Estimate, report, and evaluate the effects of uncollectible accounts receivable (bad debts) on financial statements.

Check my work

7.

value:
5.00 points

Required information

P6-3 Part 4

4. Show how the amounts related to accounts receivable should be presented on the 2014 income statement and balance sheet. (Amounts to be deducted should be indicated by a minus sign.)

References

eBook & Resources

Answer 1