Question

IceKreme Inc. makes ice cream machines for sale to ice cream parlours. The following events occurred between April 1 and June 30, 2017: April 10: Received an order from Peter's Appliances, a wholesaler, for 32 machines. April 30: Sold 48 machines to Yuri Inc. on credit. May 1: The purchasing manager of Peter's Appliances visited IceKreme's factory and purchased 34 machines on credit, instead of the 32 machines that were previously ordered. May 5: Yuri Inc. paid for the machines purchased on April 30. May 7: Sold 15 machines to Cheng Ltd. on credit. May 10: Wrote off $14,000 of accounts receivable that were considered uncollectible. These receivables relate to sales made prior to April 1, 2017. May 15: Peter's Appliances returned three defective machines and paid the amount due. June 1: Received $180,000 from Cheng Ltd. on account. June 30: Recovered $3,500 from the receivables that were written off on May 10. Additional information is as follows: • IceKreme sold all machines at $15,000 per unit. • All of IceKreme's sales were on credit with terms 3/10, n/30. • IceKreme's records included the following items and their balances as at March 31, 2017: Accounts receivable Allowance of doubtful accounts (credit balance) Net sales $ 70,000 21,600 700,000

Answer 1

Journal Entry for Bad-Debt :

Accounts	Debit	Credit
Bad-Debt Expenses	3,050
Allowance for Doubtful Accounts		3,050
(Being differential provision for doubtful debts)

Total Amount not collectible in future : 14,150

Average collection Days : 43.77491 Days

Working :

Statement of Receivable
Date	Amount	Remark
1st April	70,000	Opening Balance
30th April	720,000	Yuri
1st May	510,000	Peter's Appliance
5th May	(720,000)	Yuri
7th May	225,000	Cheng
10th May	(14,000)	Opening Balance - written off
15th May	(510,000)	Peter's Appliance
1st Jun	(180,000)	Cheng
10th May	3,500	Opening Balance - bad-debt recovered
	104,500	Total

The same color amount indicates same party.

Breakup of Receivable Party wise on 30th Jun
59,500	Opening Balance (70,000-14,000+3,500)
-	Yuri (720,000-720,000)
-	Peter's Appliance (510,000-510,000)
45,000	Cheng
104,500	Total Receivable

Calculation of amount may not be collectible
Estimated uncollectible	Amount of receivable	Aging of receivable	Amount may not Collectible in future
5%	45,000	Not Due	2,250
10%	0	1-30 Days Past Due	-
15%	0	31-60 Days Past Due	-
20%	59,500	Over 60 Days Past Due	11,900
		Total Amount may not Collectible in future	14,150

Calculation of allowance for doubtful differential to be created :

	Opening allowance for doubtful accounts	21,600
Less:	Bad-debt during the year	(14,000)
Add:	Bad Debt recovered	3,500
	Balance at end of period	11,100
Less:	Balance required	14,150
	Differential allowance for doubtful account to be created	3,050

Average collection period of Receivable

Average Account Receivable / Annual Sales * 365

(70000+104500)/(720000+510000+225000)*365

43.77491

Days