Canyon Canoe Company has experienced rapid growth in its first few months of operations and has had a significant increase in customers renting canoes and purchasing T-shirts. Many of these customers are asking for credit terms. Amber and Zack Wilson, stockholders and company managers, have decided it is time to review their business transactions and update some of their business practices. Their first step is to make decisions about handling accounts receivable.
So far, year to date credit sales have been $15,500. A review of outstanding receivables resulted in the following aging schedule:

Requirements
1. The company wants to use the allowance method to estimate bad debts. Determine the estimated bad debts expense under the following methods at June 30, 2019. Assume a zero beginning balance for Allowance for Bad Debts. Round to the nearest dollar.
a. Percent-of-sales method, assuming 4.5% of credit sales will not be collected.
b. Percent-of-receivables method, assuming 22.5% of receivables will not be collected.
c. Aging-of-receivables method, assuming 5% of invoices 1-30 days will not be collected, 20% of invoices 31-60 days, 40% of invoices 61-90 days, and 75% of invoices over 90 days.
2. Journalize the entry at June 30, 2019, to adjust for bad debts expense using the percent-of-sales method.
3. Journalize the entry at June 30, 2019, to record the write-off of the Early Start Daycare invoice.
4. At June 30, 2019, open T-accounts for Accounts Receivable and Allowance for Bad Debts before Requirements 2 and 3. Post entries from Requirements 2 and 3 to those accounts. Assume a zero beginning balance for Allowance for Bad Debts.
5. Show how Canyon Canoe Company will report net accounts receivable on the balance sheet on June 30, 2019.

Transcribed Image Text:

Age of Accounts as of June 30, 2019 61-90 Over 90 Total 1-30 31-60 Balance Customer Name Days Days Days Days $ 250 Canyon Youth Club $ 250 $ 150 Crazy Tees 350 200 $ 500 Early Start Daycare 500 Lakefront Pavilion 575 575 Outdoor Center $ 300 300 Rivers Canoe Club 350 350 Sport Shirts 450 120 570 Zack's Marina 75 75 75 225 Totals $ 1,900 $ 3,120 $ 345 $ 375 $ 500