Splish Brothers Inc. sells office equipment and supplies to many organizations in the city and surrounding area on contract terms of 2/10, 1/30. In the past, over 75% of the credit customers have taken advantage of the discount by paying within 10 days of the invoice date. The number of customers taking the full 30 days to pay has increased within the last year. Current indications are that less than 60% of the customers are now taking the discount. Bad debts as a percentage of gross credit sales have risen from the 2.5% average in past years to about 4.7% in the current year. The company's Finance Committee has requested more information on the collections of accounts receivable. The controller responded to this request with the following report. Proportion of Total 60% (b1) 22% 9% 5% 23% 13% Age Categories not yet due less than 30 days past due 30 to 60 days past due 61 to 120 days past due 121 to 180 days past due over 180 days past due www. wwwwwww Additional allowance needed Probability of Collection 98% 96% 94% 91% 75% Allowance for Doubtful Accounts had a credit balance of $27,000 on June 1, 2019. Splish Brothers has provided for a monthly bad debt expense accrual during the current fiscal year based on the assumption that 4,7% of gross credit sales will be uncollectible. Total gross credit sales for the 2019-2020 fiscal year amounted to $2,900,000. Write-offs of bad accounts during the year totaled $103,000. 30% Compute the amount of the year-end adjustment necessary to bring Allowance for Doubtful Accounts to the balance indicated by the age analysis.
Splish Brothers Inc. sells office equipment and supplies to many organizations in the city and surrounding area on contract terms of 2/10, 1/30. In the past, over 75% of the credit customers have taken advantage of the discount by paying within 10 days of the invoice date. The number of customers taking the full 30 days to pay has increased within the last year. Current indications are that less than 60% of the customers are now taking the discount. Bad debts as a percentage of gross credit sales have risen from the 2.5% average in past years to about 4.7% in the current year. The company's Finance Committee has requested more information on the collections of accounts receivable. The controller responded to this request with the following report. Proportion of Total 60% (b1) 22% 9% 5% 23% 13% Age Categories not yet due less than 30 days past due 30 to 60 days past due 61 to 120 days past due 121 to 180 days past due over 180 days past due www. wwwwwww Additional allowance needed Probability of Collection 98% 96% 94% 91% 75% Allowance for Doubtful Accounts had a credit balance of $27,000 on June 1, 2019. Splish Brothers has provided for a monthly bad debt expense accrual during the current fiscal year based on the assumption that 4,7% of gross credit sales will be uncollectible. Total gross credit sales for the 2019-2020 fiscal year amounted to $2,900,000. Write-offs of bad accounts during the year totaled $103,000. 30% Compute the amount of the year-end adjustment necessary to bring Allowance for Doubtful Accounts to the balance indicated by the age analysis.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Splish Brothers Inc. sells office equipment and supplies to many organizations in the city and surrounding area on contract terms of
2/10, n/30. In the past, over 75% of the credit customers have taken advantage of the discount by paying within 10 days of the invoice
date.
The number of customers taking the full 30 days to pay has increased within the last year. Current indications are that less than 60% of
the customers are now taking the discount. Bad debts as a percentage of gross credit sales have risen from the 2.5% average in past
years to about 4.7% in the current year.
The company's Finance Committee has requested more information on the collections of accounts receivable. The controller
responded to this request with the following report.
Proportion of Total
60%
22%
(b1)
9%
5%
214%
13%
Age Categories
not yet due
less than 30 days past due
30 to 60 days past due
61 to 120 days past due
121 to 180 days past due
over 180 days past due
Probability of Collection
98%
96%
Additional allowance needed
94%
91%
Allowance for Doubtful Accounts had a credit balance of $27,000 on June 1, 2019. Splish Brothers has provided for a monthly bad
debt expense accrual during the current fiscal year based on the assumption that 4,7% of gross credit sales will be uncollectible. Total
gross credit sales for the 2019-2020 fiscal year amounted to $2,900,000. Write-offs of bad accounts during the year totaled
$103,000.
75%
30%
Compute the amount of the year-end adjustment necessary to bring Allowance for Doubtful Accounts to the balance indicated by
the age analysis.
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