Blue Skies Equipment Company uses the aging approach to estimate bad debt expense at the end of each accounting year. Credit sales occur frequently on terms n/60. The balance of each account receivable is aged on the basis of three time periods as follows: (1) not yet due, (2) up to one year past due, and (3) more than one year past due. Experience has shown that for each age group, the average loss rate on the amount of the receivable at year-end due to uncollectibility is (a) 2 percent, (b) 9 percent, and (c) 26 percent, respectively.
At December 31, 2022 (end of the current accounting year), the Accounts Receivable balance was $52,000 and the Allowance for Doubtful Accounts balance was $1,080 (credit). In determining which accounts have been paid, the company applies collections to the oldest sales first. To simplify, only five customer accounts are used; the details of each on December 31, 2022, follow:
B. Brown−Account ReceivableDateExplanationDebitCreditBalance03/11/2021Sale14,100 14,10006/30/2021Collection 3,90010,20001/31/2022Collection 3,1007,100
D. Donalds−Account ReceivableDateExplanationDebitCreditBalance02/28/2022Sale22,300 22,30004/15/2022Collection 8,00014,30011/30/2022Collection 4,20010,100
N. Napier−Account ReceivableDateExplanationDebitCreditBalance11/30/2022Sale8,700 8,70012/15/2022Collection 2,1006,600
S. Strothers−Account ReceivableDateExplanationDebitCreditBalance03/02/2020Sale4,400 4,40004/15/2020Collection 4,400009/01/2021Sale9,800 9,80010/15/2021Collection 4,9004,90002/01/2022Sale21,900 26,80003/01/2022Collection 5,60021,20012/31/2022Sale2,600 23,800
T. Thomas−Account ReceivableDateExplanationDebitCreditBalance12/30/2022Sale4,400 4,400
P6-3 Part 1 and 2
Required:
1. Compute the total accounts receivable in each age category.
2. Compute the estimated uncollectible amount for each age category and in total.
