Bad-Debt Reporting Issues Valasquez Company sells office equipment and supplies to many organizations in the city and

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Bad-Debt Reporting Issues Valasquez 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 the 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.

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(a) Prepare an accounts receivable aging schedule for Valasquez Company using the age categories identified in the controller's report to the finance committee showing:

(1) The amount of accounts receivable outstanding for each age category and in total.

(2) The estimated amount that is uncollectible for each category and in total.

(b) Compute the amount of the year-end adjustment necessary to bring Allowance for Doubtful Accounts to the balance indicated by the age analysis. Then prepare the necessary journal entry to adjust the accounting records.

(c) In a recessionary environment with tight credit and high interest rates:

(1) Identify steps Valasquez Company might consider to improve the accounts receivable situation.

(2) Then evaluate each step identified in terms of the risks and costs involved.

Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...
Aging Schedule
Aging schedule is an accounting table that shows a company’s account receivables. It is an summarized presentation of accounts receivable into a separate time brackets that the rank received based upon the days due or the days past due. Generally...
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Intermediate Accounting

ISBN: 978-0470423684

13th Edition

Authors: Donald E. Kieso, Jerry J. Weygandt, And Terry D. Warfield

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