Using an Aging Schedule to Account for Bad Debts

Sparkle Jewels distributes fine stones. It sells on credit to retail jewelry stores and extends terms that require the stores to pay in 60 days. For accounts that are not overdue, Sparkle has found that there is a 95% probability of collection. For accounts up to one month past due, the likelihood of collection decreases to 80%. If accounts are between one and two months past due, the probability of collection is 60%, and if an account is over two months past due, Sparkle Jewels estimates only a 40% chance of collecting the receivable.

On December 31, 2017, the balance in Allowance for Doubtful Accounts is $12,300. The amounts of gross receivables by age on this date are as follows:

Category		Amount
Current		$200,000
Past due:
Less than one month		45,000
One to two months		25,000
Over two months		1,000

Required:

1. Prepare a schedule to estimate the amount of uncollectible accounts at December 31, 2017.

Sparkle Jewels
Aging Schedule to Account for Bad Debts
Category	Amount	Estimated Percent Uncollectible	Estimated Amount Uncollectible
Current	$200,000	fill in the blank fe316909cfce040_1%	$fill in the blank fe316909cfce040_2
Past due:
Less than one month	45,000	fill in the blank fe316909cfce040_3%	fill in the blank fe316909cfce040_4
One to two months	25,000	fill in the blank fe316909cfce040_5%	fill in the blank fe316909cfce040_6
Over two months	1,000	fill in the blank fe316909cfce040_7%	fill in the blank fe316909cfce040_8
Totals	$271,000		$fill in the blank fe316909cfce040_9

2. On the basis of the schedule in part (1), identify and analyze the adjustment on December 31, 2017, to estimate bad debts.

Activity
Accounts
Statement(s)

How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

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3. Show how accounts receivable would be presented on the December 31, 2017, balance sheet.

Sparkle Jewels
Partial Balance Sheet
December 31, 2017
Current Assets
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		$fill in the blank c8cf7e009fc9fd6_6