Blue Skies Equipment Company uses the aging approach to estimatebad debt expense

Question

Blue Skies Equipment Company uses the aging approach to estimatebad debt expense at the end of each accounting year. Credit salesoccur frequently on terms n/60. The balance of each accountreceivable 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 oneyear past due. Experience has shown that for each age group, theaverage loss rate on the amount of the receivable at year-end dueto uncollectability is (a) 1 percent, (b) 5 percent, and (c) 30percent, respectively.

At December 31, 2008 (end of the current accounting year), theAccounts Receivable balance was $42,000, and the Allowance forDoubtful Accounts balance was $1,020 (credit). In determining whichaccounts have been paid, the company applies collections to theoldest sales first. To simplify, only five customer accounts areused; the details of each on December 31, 2008, follow:

Explanation / Answer

Blue Skies Equipment Company uses the aging approach to estimatebad debt expense

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