Swathmore Clothing Corporation grants its customers 30 days’ credit. The company
ID: 2748866 • Letter: S
Question
Swathmore Clothing Corporation grants its customers 30 days’ credit. The company uses the allowance method for its uncollectible accounts receivable. During the year, a monthly bad debt accrual is made by multiplying 2% times the amount of credit sales for the month. At the fiscal year-end of December 31, an aging of accounts receivable schedule is prepared and the allowance for uncollectible accounts is adjusted accordingly. At the end of 2012, accounts receivable were $600,000 and the allowance account had a credit balance of $64,000. Accounts receivable activity for 2013 was as follows: Beginning balance $ 600,000 Credit sales 2,750,000 Collections (2,613,000 ) Write-offs (52,000 ) Ending balance $ 685,000 The company’s controller prepared the following aging summary of year-end accounts receivable: Summary Age Group Amount Percent Uncollectible 0–60 days $ 435,000 3 % 61–90 days 93,000 10 91–120 days 62,000 21 Over 120 days 95,000 36 Total $ 685,000
Explanation / Answer
Expected amount of Accounts Receivable that is uncollectible
The following is the amount lost due to fire under each aging category ie a total of $69570.The Account for doubtful debts must hold a credit balance of $69570 to meet up the losses.
Age of Accounts Receivable Accounts Receivable amount Probability of Not Collecting Expected Uncollectible amount 0-60 days 435000 3% 13050 61-90 days 93000 10% 9300 91-120 days 62000 21% 13020 over 120 days 95000 36% 34200Related Questions
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