P6-3 (Algo) Determining Bad Debt Expense Based on Aging Analysis LO6-2 [The following information applies to the questions displayed below.]
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 accounts receivable is 4 percent, 15 percent, and 32 percent respectively of the receivable at year-end due to uncollectibility.
At December 31, 2019 (end of the current accounting year), the Accounts Receivable balance was $51,500 and the Allowance for Doubtful Accounts balance was $1,060 (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, 2019, follow:
B. Brown - Account Receivable Date Explanation Debit Credit 03/11/2018 Sale 14,000 06/30/2018 Collection 4,000 01/31/2019 Collection 2,800
Balance 14,000 10,000 7,200
D. Donalds - Account Receivable Date Explanation Debit Credit 02/28/2019 Sale 22,200 04/15/2019 Collection 7,800 11/30/2019 Collection 5,900
Balance 22,200 14,400 8,500
N. Napier - Account Receivable Date Explanation Debit Credit 11/30/2019 Sale 9,400 12/15/2019 Collection 2,900
Balance 9,400 6,500
S. Strothers - Account Receivable Date Explanation Debit Credit 03/02/2017 Sale 5,800 04/15/2017 Collection 5,800 09/01/2018 Sale 10,600 10/15/2018 Collection 3,900 02/01/2019 Sale 22,300 03/01/2019 Collection 8,000 12/31/2019 Sale 2,300
Balance 5,800
10,600 6,700 29,000 21,000 23,300
T. Thomas - Account Receivable Date Explanation Debit Credit 12/30/2019 Sale 6,000
Balance 6,000
P6-3 Part 4
4. Show how the amounts related to accounts receivable should be presented on the 2019 income statement and balance sheet.
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Income Bal Sheet Stat
Show how the amounts related to accounts receivable should be presented on the 2019 income statement.
BLUE SKIES EQUIPMENT COMPANY Income Statement (partial) For the Year Ended December 31, 2019 Operating expenses