Bailey’s Manufacturing Company is looking at changing its method of reporting bad debts expense. In past years, the company has been able to use the direct write-off method but has experienced significant growth in recent years. The accountants have prepared the following aging schedule based upon current accounts receivable volume. Balance Age of Receivable Estimated Percentage Uncollectible $245,000 Under 30 days 0.75% 135,600 30-60 days 3.50 55,660 61-120 days 20.00 32,500 121-240 days 35.00 28,750 241-360 days 45.00 18,750 Over 360 days 60.00 $516,260 Current Account Balances Allowance for Uncollectible Accounts $4,568 Cr. Net Credit Sales $1,678,975 Cash Sales 1,453,650 Total Sales $3,132,625 Accounts Receivable $516,260 Required: 1. Use the aging analysis to compute the estimated amount of uncollectible receivables. 2. Prepare the journal entry to record the estimated uncollectibles. 3. Instead of the aging method, compute the estimated bad debts to be: a. 2.5% of net credit sales. b. 3.5% of gross accounts receivable
Bailey’s Manufacturing Company is looking at changing its method of reporting bad debts expense. In past years, the company has been able to use the direct write-off method but has experienced significant growth in recent years. The accountants have prepared the following aging schedule based upon current accounts receivable volume. Balance Age of Receivable Estimated Percentage Uncollectible $245,000 Under 30 days 0.75% 135,600 30-60 days 3.50 55,660 61-120 days 20.00 32,500 121-240 days 35.00 28,750 241-360 days 45.00 18,750 Over 360 days 60.00 $516,260 Current Account Balances Allowance for Uncollectible Accounts $4,568 Cr. Net Credit Sales $1,678,975 Cash Sales 1,453,650 Total Sales $3,132,625 Accounts Receivable $516,260 Required: 1. Use the aging analysis to compute the estimated amount of uncollectible receivables. 2. Prepare the journal entry to record the estimated uncollectibles. 3. Instead of the aging method, compute the estimated bad debts to be: a. 2.5% of net credit sales. b. 3.5% of gross accounts receivable
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Question
Bailey’s Manufacturing Company is looking at changing its method of reporting bad debts expense. In past years, the company has been able to use the direct write-off method but has experienced significant growth in recent years. The accountants have prepared the following aging schedule based upon current accounts receivable volume.
| Balance | Age of Receivable | Estimated Percentage Uncollectible |
| $245,000 | Under 30 days | 0.75% |
| 135,600 | 30-60 days | 3.50 |
| 55,660 | 61-120 days | 20.00 |
| 32,500 | 121-240 days | 35.00 |
| 28,750 | 241-360 days | 45.00 |
| 18,750 | Over 360 days | 60.00 |
| $516,260 |
| Current Account Balances | |
| Allowance for Uncollectible Accounts | $4,568 Cr. |
| Net Credit Sales | $1,678,975 |
| Cash Sales | 1,453,650 |
| Total Sales | $3,132,625 |
| Accounts Receivable | $516,260 |
| Required: | |||||
| 1. | Use the aging analysis to compute the estimated amount of uncollectible receivables. | ||||
| 2. | Prepare the |
||||
| 3. | Instead of the aging method, compute the estimated bad debts to be:
|
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