Question

Required information

[The following information applies to the questions displayed below.]

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) 2 percent, (b) 13 percent, and (c) 33 percent, respectively.

At December 31, 2019 (end of the current accounting year), the Accounts Receivable balance was $49,100 and the Allowance for Doubtful Accounts balance was $1,050 (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		3,100	10,000
01/31/2019	Collection		3,200	6,800

D. Donalds—Account Receivable
Date	Explanation	Debit	Credit	Balance
02/28/2019	Sale	21,000		21,000
04/15/2019	Collection		9,000	12,000
11/30/2019	Collection		5,200	6,800

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

S. Strothers—Account Receivable
Date	Explanation	Debit	Credit	Balance
03/02/2017	Sale	4,900		4,900
04/15/2017	Collection		4,900	0
09/01/2018	Sale	9,600		9,600
10/15/2018	Collection		3,600	6,000
02/01/2019	Sale	21,400		27,400
03/01/2019	Collection		6,600	20,800
12/31/2019	Sale	2,900		23,700

T. Thomas—Account Receivable
Date	Explanation	Debit	Credit	Balance
12/30/2019	Sale	4,600		4,600

Answer 1

Ans 1 Not Yet Due Upto one year past due More than one year past due Total Accounts Receivable Working $14,700 $34,400 $0 $49,100 Name of Party Date of Sale Due date Amount B. Brown D.Donald N.Napier S.Strothers S.Strothers T.Thomas 11/03/2019 10/05/2019 28/02/2019 29/04/2019 30/11/2019 29/01/2020 01/02/2019 02/04/2019 31/12/2019 29/02/2020 30/12/2019 28/02/2020 $13,100 $21,000 $8,300 $21,400 $2,900 $4,600 Outstanding as No of days Collection on 31st Dec Remarks past due 2019 $6,300 $6,800 235 Upto one year past due $14,200 $6,800 246 Upto one year past due $1,100 $7,200 Not Yet Due $600 $20,800 273 Upto one year past due $2,900 Not Yet Due $4,600 Not Yet Due $49,100 Ans 2 Particulars Amount $14,700 $34,400 2% Expected Expected uncollectible uncollectible percentage amount $294 ($14700 x 2%] 13% $4,472 [$34400 x 13%] 33% $0 [$0 x 33%) $4,766 Not Yet Due Upto one year past due More than one year past due Total Accounts Receivable $49,100

Ans 3 Transaction Credit General Journal Bad Debt Expense Allowance for uncollection account Debit $4,766 $4,766 Ans 4 Blue Skies Equipment Company Income Statement (Partial) For the year ended 31st December, 2019 Operating Expense: Bad Debt Expense $4,766 Ans 5 Blue Skies Equipment Company Balance Sheet (Partial) As of 31st December, 2019 Current Assets Accounts Receivable Less: Allowance for Uncollectible Account Accounts Receivable (Net) $49,100 ($4,766) $44,334