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) 6 percent, (b) 8 percent, and (c) 31 percent, respectively.

At December 31, 2019 (end of the current accounting year), the Accounts Receivable balance was $54,600 and the Allowance for Doubtful Accounts balance was $950 (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	14,700		14,700
06/30/2018	Collection		3,300	11,400
01/31/2019	Collection		3,200	8,200

D. Donalds—Account Receivable
Date	Explanation	Debit	Credit	Balance
02/28/2019	Sale	22,700		22,700
04/15/2019	Collection		7,600	15,100
11/30/2019	Collection		5,800	9,300

N. Napier—Account Receivable
Date	Explanation	Debit	Credit	Balance
11/30/2019	Sale	9,600		9,600
12/15/2019	Collection		1,700	7,900

S. Strothers—Account Receivable
Date	Explanation	Debit	Credit	Balance
03/02/2017	Sale	4,700		4,700
04/15/2017	Collection		4,700	0
09/01/2018	Sale	10,600		10,600
10/15/2018	Collection		3,400	7,200
02/01/2019	Sale	22,400		29,600
03/01/2019	Collection		8,200	21,400
12/31/2019	Sale	3,800		25,200

T. Thomas—Account Receivable
Date	Explanation	Debit	Credit	Balance
12/30/2019	Sale	4,000		4,000

P6-3 Part 1

Required:

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

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

3. Prepare the adjusting entry for bad debt expense at December 31, 2019. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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

Answer 1