Question

Canyon CanoeCanyon Canoe

Company has experienced rapid growth in its first few months of operations and has had a significant increase in customers renting canoes and purchasing​ T-shirts. Many of these customers are asking for credit terms.

Amber and Zack ​Wilson, stockholders and company​ managers, have decided it is time to review their business transactions and update some of their business practices. Their first step is to make decisions about handling accounts receivable. So​ far, year to date credit sales have been $15,500.

A review of outstanding receivables resulted in the following aging​ schedule:

Age of Accounts as of June 30, 2019
	1-30	31-60	61-90	Over 90	Total
Customer Name	Days	Days	Days	Days	Balance
Canyon Youth Club	$250				$250
Crazy Tees	200	$150			350
Early Start Daycare				$500	500
Lakefront Pavilion	575				575
Outdoor Center			300		300
Rivers Canoe Club	350				350
Sport Shirts	450	120			570
Zach's Marina	75	75	75		225
Total	$1,900	$345	$375	$500	$3,120

Requirement 1. The company wants to use the allowance method to estimate bad debts. Assume a zero beginning balance for Allowance for Bad Debts.

a. Determine the estimated bad debts expense under the​ percent-of-sales methods at

June 30​, 2019.

Assume that 4.5​% of credit sales will not be collected. ​(Round to the nearest​ dollar.)

	Method	Estimated Bad Debts
a.	Percent-of-sales

Answer 1

Answer:

Estimated Bad debts under percent of sales method = Credit Sales * Percentage of Estimated Bad debts

Estimated Bad debts = 15,500 * 4.5%

Estimated Bad debts = $ 698