Determining Bad Debt Expense Based on Aging Analysis
Blue Skies Equipment Company uses the aging approach to estimate bad debt expense at the end of each accounting year. Credit sales occur frequently on terms n/60. The balance of each account receivable 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 one year past due. Experience has shown that for each age group, the average loss rate on the amount of the receivable at year-end due to uncollectability is (a) 2 percent,
(b) 7 percent, and
(c) 30 percent, respectively.
At December 31, 2011 (end of the current accounting year), the Accounts Receivable balance was $46,700, and the Allowance for Doubtful Accounts balance was $920 (credit). In determining which accounts have been paid, the company applies collections to the oldest sales first. To simplify, only five customer accounts are used; the details of each on December 31, 2011, follow:

Required:
1. Compute the total accounts receivable in each age category.
2. Compute the estimated uncollectible amount for each age category and in total.
3. Give the adjusting entry for bad debt expense at December 31, 2011.
4. Show how the amounts related to accounts receivable should be presented on the 2011 income statement and balancesheet.

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B. Brown-Account Receivable Date Explanation Debit Credit Balance 13,000 3/11/2010 Sale 13,000 9,000 5.200 6/30/2010 Collection 4,000 1/31/2011 Collection 3,800 D. Donalds-Account Receivable Sale 21,000 21,000 13,000 8,000 2/28/2011 4/15/2011 Collection 8,000 5,000 11/30/2011 Collection N. Napier-Account Receivable 11/30/2011 Sale 8,000 8,000 Collection 12/15/2011 1,000 7,000 S. Strothers-Account Receivable 3/2/2009 Sale 4,000 4,000 4/15/2009 9/1/2010 Collection 4,000 -0- Sale 9,000 9.000 10/15/2010 Collection 4,500 4,500 2/1/2011 21,000 25,500 Sale 3/1/2011 Collection 5,000 20,500 Sale 22,500 12/31/2011 2,000 T. Thomas-Account Receivable 12/30/2011 Sale 4,000 4,000