jacobian steel case study

Project Description:

created by m. mari
fall 2014
page 1 of 2
jacobian steel manufacturing sells bulk steel products for maritime construction. the
company has used the allowance method for estimated bad debts for several years.
specifically they estimate that 6% of credit sales will go bad each year. over the past
several years, jacobian has seen that year-end allowance account has a debit balance
before adjustment. the company wants an in-depth analyzes of bad debts and a
determination as to which method to use. you have been hired to perform the study.
during your review of their financial records, the following data becomes available.
credit sales:
year total sales % on credit
2010 $1,000,000 60%
2011 $1,800,000 70%
2012 $2,000,000 75%
write offs:
year bad debts written off
2010 $52,000
2011 $96,000
2012 $60,000
allowance balance on december 31, 2005 before adjustment:
year balance
2010 $6,000
2011 $42,000
2012 $12,000
aging of accounts receivable:
2012
accounts
receivable
percentage
uncollectible
not due $250,000 6%
1-30 past due $110,000 15%
31-60 $140,000 20%
61- 90 $90,000 30%
over 90 days $40,000 60%
 considering also using percentage of accounts receivable balance to compute
estimated uncollectible for period. jacobian considers using 12%.
ase 2 [jacobian steel
created by m. mari
fall 2014
page 2 of 2
accounts receivable balance:
year year end balance
2010 $365,000
2011 $425,000
2012 $630,000
which method should they use and why? calculate bad debts under each method and
find the method closest to the actual bad debts.
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