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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Aging of receivables; estimating allowance for doubtful accounts

Trophy Fish Company supplies flies and fishing gear to sporting goods stores and outfitters throughout the western United States. The accounts receivable clerk for Trophy Fish prepared the following partially completed aging of receivables schedule as of the end of business on December 31, 20Y6:

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The following accounts were unintentionally omitted from the aging schedule:

Customer Due Date Balance
Adams Sports & Flies May 22, 20Y6 $5,000
Blue Dun Flies Oct. 10, 20Y6 4,900
Cicada Fish Co. Sept. 29, 20Y6 8,400
Deschutes Sports Oct. 20, 20Y6 7,000
Green River Sports Nov. 7, 20Y6 3,500
Smith River Co. Nov. 28, 20Y6 2,400
Western Trout Company Dec. 7, 20Y6 6,800
Wolfe Sports Jan. 20, 20Y 7 4,400

Trophy Fish has a past history of uncollectible accounts by age category, as follows:

Age Class Percent Uncollectible
Not past due 1%
1-30 days past due 2
31-60 days past due 10
61-90 days past due 30
91-120 days past due 40
Over 120 days past due 80

Instructions

  1. 1. Determine the number of days past due for each of the preceding accounts.
  2. 2. Complete the aging of receivables schedule by adding the omitted accounts to the bottom of the schedule and updating the totals.
  3. 3. Estimate the allowance for doubtful accounts, based on the aging of receivables schedule.
  4. 4. Assume that the allowance for doubtful accounts for Trophy Fish Company has a debit balance of $3,600 before adjustment on December 31, 20Y6. Journalize the adjusting entry for uncollectible accounts.
  5. 5. Assuming that the adjusting entry in (4) was inadvertently omitted, how would the omission affect the balance sheet and income statement?

(1)

To determine

Accounts receivable

Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.

Due date:

Due date is the maturity date on note/account, on due date the borrower is supposed to pay the debt.

Past due:

Past due is the number of days of not receiving/making payment on the overdue account.

Analysis of receivables method:

A method of determining the estimated uncollectible receivables based on the age of individual accounts receivable is known as analysis of receivables method. This method is otherwise known as aging of receivables method. Under analysis of receivables method, estimated bad debts would be treated as the desired adjusted balance for allowance for doubtful accounts.

To determine: The number of days each account is past due as of December 31, 20Y6.

Explanation

Determine the number of days each account is past due as of December 31, 20Y6.

Account Due Date Number of days past due
A Sports & Files May 22, 20Y6 223 days
BD Flies October 10, 20Y6 82 days
C Fish Company September 29, 20Y6 93 days
D Sports October 20, 20Y6 72 days
G R Sports November 7, 20Y6 54 days
S R Company November 28, 20Y6 33 days
W T Company December 7, 20Y6 24 days
W Sports January 20, 20Y7 Not past due

Table (1)

Working note:

Calculate number of days past due for each account.

A Sports & Files Account Past due days
Number of days from May 23 to 31 9 days
Number of days from June 1 to 30 30 days
Number of days from July 1 to 31 31 days
Number of days from August 1 to 31 31 days
Number of days from September 1 to 30 30 days
Number of days from October 1 to 31 31 days
Number of days from November 1 to 30 30 days
Number of days from December 1 to 31 31 days
Total 223 days

Table (2)

BD Flies Account Past due days
Number of days from October 11 to 31 21 days
Number of days from November 1 to 30 30 days
Number of days from December 1 to 31 31 days
Total 82 days

Tabl...

(2)

To determine

To complete: The aging of receivables schedule, by adding the omitted accounts to the bottom of the schedule and update the totals.

(3)

To determine

To prepare: An estimate for allowance for doubtful accounts, on the basis of aging of receivables schedule.

(4)

To determine

To Journalize: The adjusting entry for uncollectible accounts.

(5)

To determine

To identify: The effect on the balance sheet and income statement, if adjusting entry is omitted unintentionally.

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