Blue Skies Equipment Company uses the aging approach to estimate bad debt expens

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) 2 percent, (b) 14 percent, and (c) 33 percent, respectively.

At December 31, 2014 (end of the current accounting year), the Accounts Receivable balance was $51,200, and the Allowance for Doubtful Accounts balance was $1,030 (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, 2014, follow:

B. Brown—Account Receivable Date Explanation Debit Credit Balance 3/11/2013 Sale 13,100 13,100 6/30/2013 Collection 4,500 8,600 1/31/2014 Collection 3,300 5,300 Required: Compute the total accounts receivable in each age category Not yet due Up to one year past due More than one year past due Compute the estimated uncollectible amount for each age calegory and in total. Not yet due Up to one year past due More than one year past due Total Prepare journal entry for bad debt expense at December 31, 2014. (If no entry is required for a transactionlevent, select No journal entry required" in the first account field.) View transaction list ournal entry worksheet Record the journal entry for bad debt expense at December 31, 2014 Note: Enter debits before credits Transaction General Journal Debit Credit Record entry Clear entry View general journal Show how the amounts related to accounts receivable should be presented on the 2014 income statement and balance sheet. (Amounts to be deducted should be indicated by a minus sign.) BLUE SKIES EQUIPMENT COM Income Statement (partial) For the Year Ended December 31, 2014 Operating expenses ES Balance Sheet (partial) As of December 31, 2014 ENT Current assets Accounts receivable (net)

Explanation / Answer

Accounts Receivable:

Working:

Estimated uncollectible amount:

Working:

Amount Not yet due 17100 Up to one year past due 28800 More than one year past due 5300

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