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) 3 percent, (b) 12 percent, and (c) 31 percent, respectively.

At December 31, 2019 (end of the current accounting year), the Accounts Receivable balance was $53,100 and the Allowance for Doubtful Accounts balance was $1,000 (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	13,200		13,200
06/30/2018	Collection		3,300	9,900
01/31/2019	Collection		3,400	6,500

D. Donalds—Account Receivable
Date	Explanation	Debit	Credit	Balance
02/28/2019	Sale	21,600		21,600
04/15/2019	Collection		7,400	14,200
11/30/2019	Collection		4,200	10,000

N. Napier—Account Receivable
Date	Explanation	Debit	Credit	Balance
11/30/2019	Sale	8,300		8,300
12/15/2019	Collection		1,200	7,100

S. Strothers—Account Receivable
Date	Explanation	Debit	Credit	Balance
03/02/2017	Sale	4,400		4,400
04/15/2017	Collection		4,400	0
09/01/2018	Sale	10,400		10,400
10/15/2018	Collection		4,600	5,800
02/01/2019	Sale	22,800		28,600
03/01/2019	Collection		7,000	21,600
12/31/2019	Sale	3,900		25,500

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

Questions:

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

1.) Total accounts receivable in each age category

	Amount
Not yet due	15,000
Up to one year past due	31,600
More than one year past due	6,500
Total accounts receivable $	53,100

Working:

Account	Balance	Not yet due	Up to one year past due	More than one year past due
B. Brown	6,500			6,500
D. Donalds	10,000		10,000
N. Napier	7,100	7,100
S. Strothers	25,500	3,900	21,600
T. Thomas	4,000	4,000
TOTAL	53,100	15,000	31,600	6,500

2.) Estimated uncollectible amount:

	Amount
Not yet due	450
Up to one year past due	3,792
More than one year past due	2,015
TOTAL	6,257

Working:

Aging	Amount	Estimated Uncollectible Percent	Estimated Uncollectible Amount
Not yet due	15,000	3%	450
Up to one year past due	31,600	12%	3,792
More than one year past due	6,500	31%	2,015

3.) Journal Entry

Date	Account Title and Explanation	Debit $	Credit $
Dec.31, 2019	Bad debt expense (6,257-1,000)	5,257
	Allowance for doubtful accounts		5,257
	(To record bad debt expense)

4.) Income Statement

Blue Skies Equipment Company Income Statement For the Year Ended December 31, 2019
Operating expenses:
Bad debt expense	5,257

Balance Sheet

Blue Skies Equipment Company Balance Sheet (Extract) as at December 31, 2019
Current assets:
Accounts receivable	53,100
Less: Allowance for doubtful accounts	(5,257)
Accounts receivable (net)		47,843

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