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) 3 percent, (b) 9 percent, and (c) 28 percent, respectively.

At December 31, 2014 (end of the current accounting year), the Accounts Receivable balance was $48,700, and the Allowance for Doubtful Accounts balance was $920 (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 Debit 13,000 Balance 13,000 10,000 6,200 Date Credit 3/11/2013 6/30/2013 1/31/2014 Explanation Sale Collection Collection 3,000 3,800 D. Donalds-Account Receivable Credit Date 02/28/2014 04/15/2014 11/30/2014 Explanation Sale Collection Collection Debit 21,000 Balance 21,000 13,000 7,000 8,000 6,000 N. Napier-Account Receivable Date 11/30/2014 12/15/2014 Debit 8,000 Credit Explanation Sale Collection Balance 8,000 7,000 1,000 S. Strothers-Account Receivable Debit Explanation Sale Collection Sale Collection Sale Collection Sale Credit 4,000 4,500 5,000 Date Balance 4,000 03/02/2012 04/15/2012 09/01/2013 10/15/2013 02/01/2014 03/01/2014 12/31/2014 4,000 9,000 21,000 4,000 0 9,000 4,500 25,500 20,500 24,500 T. Thomas-Account Receivable Date 12/30/2014 Explanation Sale Debit 4,000 Credit Balance 4,000

Explanation / Answer

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Amount More Than one Year Past Due $    6,200 Up to One Year Past Due $ 27,500 Not Yet Due $ 15,000

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