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) 9 percent, (b) 12 percent, and (c) 35 percent, respectively.

At December 31, 2019 (end of the current accounting year), the Accounts Receivable balance was $49,900 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	14,200		14,200
06/30/2018	Collection		4,300	9,900
01/31/2019	Collection		4,700	5,200

D. Donalds—Account Receivable
Date	Explanation	Debit	Credit	Balance
02/28/2019	Sale	21,100		21,100
04/15/2019	Collection		8,500	12,600
11/30/2019	Collection		4,500	8,100

N. Napier—Account Receivable
Date	Explanation	Debit	Credit	Balance
11/30/2019	Sale	8,900		8,900
12/15/2019	Collection		1,900	7,000

S. Strothers—Account Receivable
Date	Explanation	Debit	Credit	Balance
03/02/2017	Sale	5,300		5,300
04/15/2017	Collection		5,300	0
09/01/2018	Sale	10,500		10,500
10/15/2018	Collection		3,700	6,800
02/01/2019	Sale	22,300		29,100
03/01/2019	Collection		7,200	21,900
12/31/2019	Sale	3,200		25,100

T. Thomas—Account Receivable
Date	Explanation	Debit	Credit	Balance
12/30/2019	Sale	4,500		4,500

Required:

1. Compute the total accounts receivable in each age category.

Not yet Due______

Up to one year past due______

More than one year past due____

Total accounts recieveable___

*Show work*

Answer 1

Answer:

The 3 age buckets are:

(1) not yet due,

(2) up to one year past due, and

(3) more than one year past due.

Credit sales occur frequently on terms n/60.

As such:

(1) not yet due will be bucket for '0' to '60 days'

(2) up to one year past due will be bucket for from '61 days' to '1 year and 60 days'

(3) more than one year past due will be bucket for 'from 1 year 60 days' to '2 years and 60 days'

Let us analyze the receivables customer wise each on December 31, 2019, to determine age periods and buckets they belong to:

1. B. Brown:

Receivable balance of $5,200 is outstanding against sales of 03/11/2018. Hence the age bucket will be '(3) more than one year past due'

2. D. Donalds:

Receivable balance of $8,100 is outstanding against sales of 02/28/2019. Hence the age bucket will be '(2) Up to one year past due'

3. N. Napier:

Receivable balance of $7,000 is outstanding against sales of 11/30/2019. Hence the age bucket will be '(1) Not yet Due'

4. S. Strothers:

Receivable balance of 25,100 outstanding:

(a) $3,200 against sales of 12/31/2019 and the age bucket for this will be '(1) Not yet Due'

(b) Balance $21,900 will be against sale of 02/01/2019. Hence the age bucket for this amount will be '(2) Up to one year past due'

5. T. Thomas:

Receivable balance of $4,500 is outstanding against sales of 12/30/2019. Hence the age bucket will be '(1) Not yet Due'

As such:

Not yet Due = 7000 + 3200 + 4500 = $14,700

Up to one year past due = 8100 + 21900 = $30,000

More than one year past due = 5200

Total accounts receivable =$49,900

Hence:

Not yet Due = $14,700

Up to one year past due = $30,000

More than one year past due = 5200

Total accounts receivable = $49,900