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 30 of the current year:

April		10		Received an order from Peters Appliances, a wholesaler, for 10 machines.
April		30		Sold 15 machines to Yuri Inc. on credit.
May		1		The purchasing manager of Peters Appliances visited IceKremes 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 $12,600 of accounts receivable that were considered uncollectible. These receivables relate to sales made prior to April 1 of the current year.
May		10		Peters Appliances paid the amount due to IceKreme.
June		30		Recovered $3,300 from the receivables that were written off on May 10.

Additional information is as follows:

• IceKreme sold all machines at $13,000 per unit.
• All of IceKremes sales were on credit with terms n/30.
• IceKremes records included the following items and their balances as at March 31 of the current year:

Accounts receivable	$	72,000
Allowance of doubtful accounts (credit balance)		18,000
Net sales		750,000

Required:

1. Prepare the journal entries to record the transactions that occurred from April 1 to June 30 of the current year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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	130 days past due	3160 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 as on June 30 of the current year.

b. Prepare the journal entry to record bad debt expense at June 30 of the current year, the companys fiscal year-end. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)