Use the following information to answer questions 1-4. The following information
ID: 2426391 • Letter: U
Question
Use the following information to answer questions 1-4.
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 uncollectability is (a) 7 percent, (b) 14 percent, and (c) 35 percent, respectively At December 31, 2014 (end of the current accounting year), the Accounts Receivable balance was $49,900, and the Allowance for Doubtful Accounts balance was $1,090 (credit) In determining which accounts have been paid, the company applies collections to the oldest sales first. To simplify, only fve customer accounts are used; the details of each on December 31, 2014, follow: ecember 31, 2014, followExplanation / Answer
1 Total Accounts Receivables in Each Category Not yet due N.Napier 6800 S.Strothers 2100 T.Thomas 5200 14100 Upto one year past due D.Donalds 7900 S.Strothers 20900 28800 More than one year past due B.Brown 7000 7000 Total 49900 2.Estimated Uncollectible amount under each category Balance % Est. Amt. Not yet due 14100 7% 987 Upto one year past due 28800 14% 4032 More than one year past due 7000 35% 2450 Total 7469 3 Account Titles Debit Credit Bad debt expense 6379 Allowance for Doubtful Accounts 6379 (Additional Provision created) (7469-1090) 4 Blue Skies Equipment Company Partial Income Statement For the Year ended Dec 31,2014 Operating Expenses Bad debt provision for the year 6379 Blue Skies Equipment Company Balance Sheet (Partial) For the Year ended Dec 31,2014 Current Assets Accounts Receivables 49900 Less:Allowance for Doubtful Accounts -7469 Accounts Receivables(Net) 42431