Let us consider the accounts receivable situation for
Let us consider the accounts receivable situation for Heidman's Department Store. Heidman's uses two aging categories for its accounts receivable: (1) accounts that are classified as 0-30 days old, and (2) accounts that are classified as 31-90 days old. If any portion of an account balance exceeds 90 days, that portion is written off as a bad debt. Heidman's follows the procedure of aging the total balance in any customer's account according to the oldest unpaid bill.
For the Heidman's Department Store, suppose that the following transition matrix is appropriate:
If Heidman's has $3000 in the 0-30-day category and $4000 in the 31-90-day category, what is your estimate of the amount of bad debts the company will experience? If required, round your answer to the nearest whole number. Do not round intermediate calculations.