$P5-6(Algo)$ Determining Bad Debt Expense Based $on$ Aging Analysis and Interpreting Ratios $LO5-3,5-4$

IceKreme Inc. makes ice cream machines for sale $to$ ice cream parlours. The following events occurred between April $1$ and June $30of$ the current year:

April $10$ Received $an$ order from Peter$s$ Appliances, a wholesaler, for $10$ machines.

April $30$ Sold $15$ machines $to$ Yuri Inc. $on$ credit.

May $1$ The purchasing manager $of$ Peter$s$ Appliances visited IceKreme$s$ factory and purchased $12$ machines $on$ credit, instead $of$ the $10$ machines that were previously ordered.

May $5$ Yuri Inc. paid for the machines purchased $on$ April $30.$

May $7$ Sold $2$ machines $to$ Cheng $Ltd.on$ credit.

May $10$ Wrote off $$14,000of$ accounts receivable that were considered uncollectible. These receivables relate $to$ sales made prior $to$ April $1of$ the current year.

May $10$ Peter$s$ Appliances paid the amount due $to$ IceKreme.

June $30$ Recovered $$4,000$ from the receivables that were written off $on$ May $10.$

Additional information $isas$ follows:

IceKreme sold all machines $at$ $$20,000$ per unit.

All $of$ IceKreme$s$ sales were $on$ credit with terms$\frac{n}{30.}$

IceKreme$s$ records included the following items and their balances $asat$ March $31of$ the current year:

Accounts receivable $ $100,000$

Allowance $of$ doubtful accounts $(credit$ balance$)25,000$

Net sales $1,100,000$

$2.$ The company uses the aging $of$ accounts receivable method $to$ determine the amount $of$ bad debt expense. The estimated uncollectible rates for the various age groups are $as$ follows: $(Hint$: Use a timeline $to$ keep track $of$ accounts receivable $in$ order $to$ determine the age $of$ these receivables.$)$

Analysis $of$ Aged Accounts Receivable

Not yet due $1-30$ days

past due $31-60$ days

past due Over $60$ days

past due

Estimated $\%$ uncollectible $5\%10\%15\%20\%$

$a.$ Determine the amount $of$ receivables that may not $be$ collectible $in$ the future $ason$ June $30of$ the current year.