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Victory Company should report bad debts expensefor 2018 of?

Victory Company should report bad debts expensefor 2018 of?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Victory Company should report bad debts expensefor 2018 of?

Victory Company 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 1.5% provided in past years to about 4% in the current year. The controller has responded to a request for more information on the deterioration in collections of accounts receivable with the report reproduced below. VICTORY COMPANY Finance Committee Report - Accounts Receivable Collections Dec. 31, 2018 The fact that some credit accounts will prove uncollectible is normal. Annual bad debts write-off have been 1.5% of gross credit sales over the past five years. During the last calendar year, this percentage increased to slightly less than 4%. The current Accounts Receivable balance is P3,200,000. The condition of this balance in terms of age and probability of collections is as followe: Proportion of Total Probability of Collection Age Categories not yet due less than 30 days past due 30 to 60 days past due 68% 99% 15% 96.50% 9% 95% 61-120 days past due 121-180 days past due over 180 days past due 4% 91% 2.50% 70% 1.50% 20% Allowance for Doubtful Accounts had a credit balance of P86,600 on January 1, 2018. Victory Company has provided for a bad debt expense acerual during the current year of P320,000 based on the assumption that 4% of gross credit sales will be uncollectible. Write-offs of bad accounts during the year totaled P290,000.
Transcribed Image Text:Victory Company 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 1.5% provided in past years to about 4% in the current year. The controller has responded to a request for more information on the deterioration in collections of accounts receivable with the report reproduced below. VICTORY COMPANY Finance Committee Report - Accounts Receivable Collections Dec. 31, 2018 The fact that some credit accounts will prove uncollectible is normal. Annual bad debts write-off have been 1.5% of gross credit sales over the past five years. During the last calendar year, this percentage increased to slightly less than 4%. The current Accounts Receivable balance is P3,200,000. The condition of this balance in terms of age and probability of collections is as followe: Proportion of Total Probability of Collection Age Categories not yet due less than 30 days past due 30 to 60 days past due 68% 99% 15% 96.50% 9% 95% 61-120 days past due 121-180 days past due over 180 days past due 4% 91% 2.50% 70% 1.50% 20% Allowance for Doubtful Accounts had a credit balance of P86,600 on January 1, 2018. Victory Company has provided for a bad debt expense acerual during the current year of P320,000 based on the assumption that 4% of gross credit sales will be uncollectible. Write-offs of bad accounts during the year totaled P290,000.
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