Question

Problem 9.3 – Aging analysis, preparing journal entries and balance sheet presentation (LO 9-1)

At December 31, 20X0, Oettinger Corporation, a premium kitchen cabinetmaker for the home remodeling industry, reported the following accounts receivable information on its year-end balance sheet:

Gross accounts receivable	$	850,000
Less: Allowance for credit losses		(25,000	)
Accounts receivable (net)	$	825,000

During 20X1, the company had credit sales of $8,200,000 of which it collected $7,975,000. Oettinger employs the sales revenue approach to estimate its bad debt provisions and, continuing to use the same 1% used in previous years, made the normal adjustment at the end of 20X1.

Although 20X1 started off well, the industry experienced a slowdown in the last four months of the year, and cash collections consequently dropped off substantially. Moreover, a major customer, which owed Oettinger $85,000, unexpectedly filed for bankruptcy and went out of business during November, at which time its account was written off. Oettinger’s controller is concerned that some customers are experiencing cash flow problems and that the company’s allowance for credit losses is too low. As a result, she prepared the following schedule:

% of Accounts Receivable Balance			Number of Days Past Due			Estimated % Collectible
	20	%		0-30			98	%
	40			31-60			95
	35			61-90			85
	3			91-120			75
	2			Over 120			50

Required:

1. 1-a. Determine Oettinger’s accounts receivable balance at December 31, 20X1.

1-b. Prepare a journal entry for each transaction affecting the accounts receivable balance for 20X1.

2. 2-a. Prepare an aging analysis.

2-b. Compute the required balance in the Allowance for credit losses at December 31, 20X1.

3. 3. Prepare any other required journal entries affecting the Allowance for credit losses for the year ended December 31, 20X1. (Do not duplicate any entries from requirement 1.)

4. Show Oettinger’s balance sheet presentation of accounts receivable at December 31, 20X1.

Answer 1

journal entries aging thoughts and balancesheet
1)	account recevaible payment at dec 31 2017
		Accopunt recevaible
	starting balance	$    8,50,000.00	$ 79,75,000.00	Collections
	sales	$ 82,00,000.00	$       85,000.00	write off
	ending balance	$    9,90,000.00
		Debit	Credit
	Account receivable dr to	$ 82,00,000.00
	sale revenue		$ 82,00,000.00
	amount dr to	$ 79,75,000.00
	accounts receivable		$ 79,75,000.00
	allowance for uncollectibles dr to	$       85,000.00
	accouts receivable		$       85,000.00
2)	corporation
	accounts returned aging table
	dec 31 2017
		Accounts receivable	uncollectibles
	time	aging %	balance	%	cash
	0-30 days	20%	$   1,98,000.00	2.00%	$        3,960.00
	31-60 days	40%	$   3,96,000.00	5%	$      19,800.00
	61-90 days	35%	$   3,46,500.00	15%	$      51,975.00
	91- 120 days	3%	$       29,700.00	25%	$        7,425.00
	120 days and extra	2%	$       19,800.00	50%	$        9,900.00
	total		$   9,90,000.00		$      93,060.00
		allowe for uncollectible accounts
	2017 write off	85000	$       25,000.00	starting balance
			$       82,000.00	produced set on 1% of sales
			$       22,000.00
			$       93,060.00	equity balance
				per age timetable
3)	je causing the allowance for uncollectible accounts :
		dt	ct
	Bad mortgage expense	$       82,000.00
	allowance for uncollectibles		$       82,000.00
	to record bsd debt exp as a % of sales (8200000*.01)
	bad mortgage expense	$       71,060.00
	allowance for un collectable		$       71,060.00
	to adjust allowance for uncollectible to required aging bal
4)	accounts receivable balance sheet play
	Gross account receivable	$    9,90,000.00
	less: allowance for uncollectible	$ -9,30,60.00
	accounts receivable net	$ 896940.00