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) 10 percent, (b) 13 percent, and (c) 30 percent, respectively.

At December 31, 2019 (end of the current accounting year), the Accounts Receivable balance was $50,500 and the Allowance for Doubtful Accounts balance was $930 (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	13,100		13,100
06/30/2018	Collection		4,700	8,400
01/31/2019	Collection		3,500	4,900

D. Donalds—Account Receivable
Date	Explanation	Debit	Credit	Balance
02/28/2019	Sale	22,200		22,200
04/15/2019	Collection		8,100	14,100
11/30/2019	Collection		4,600	9,500

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

S. Strothers—Account Receivable
Date	Explanation	Debit	Credit	Balance
03/02/2017	Sale	5,100		5,100
04/15/2017	Collection		5,100	0
09/01/2018	Sale	9,400		9,400
10/15/2018	Collection		4,000	5,400
02/01/2019	Sale	22,300		27,700
03/01/2019	Collection		6,400	21,300
12/31/2019	Sale	2,000		23,300

T. Thomas—Account Receivable
Date	Explanation	Debit	Credit	Balance
12/30/2019	Sale	5,800		5,800

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

A. Not Yet Due:

B. Up to one year past due:

C. More than one year past due:

D. Total Accounts Receivable:

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

A. Not Yet Due:

B. Up to one year past due:

C. More than one year past due:

D. Total Accounts Receivable:

3. Prepare the adjusting entry for bad debt expense at December 31, 2019.

No Transaction General Journal Debit Credit

4. Show how the amounts related to accounts receivable should be presented on the 2019 income statement and balance sheet.

Answer 1

Part 1

Aging Analysis of Accounts Receivable
Customer	Total receivables	Not yet due	Up to one year past due	More than one year past due
B. Brown	4900			4900
D. Donalds	9500		9500
N. Napier	7000	7000
S. Strothers	23300	2000	21300
T. Thomas	5800	5800
Totals	50500	14800	30800	4900

Part 2

Estimated Amounts Uncollectible
	Age	Amount of receivable	Estimated loss rate	Estimated uncollectible
A	Not yet due	14800	10%	1480
B	Up to one year past due	30800	13%	4004
C	Over one year past due	4900	30%	1470
	Estimated ending balance in Allowance for Doubtful Accounts			6954
	Balance before adjustment			930
	Bad Debt Expense for the year			$6024

Part 3

General journal	Debit	Credit
Bad debt expense	6024
Allowance for doubtful accounts		6024

Part 4

Income statement:
Bad debt expense		$6024
Balance sheet:
Current Assets:
Account receivable	50500
Less: allowance for doubtful accounts	6024
Net realizable value		$44476