Question: Briggs & Stratton Engines Inc. uses the aging
Briggs & Stratton Engines Inc. uses the aging approach to estimate bad debt expense at the end of each accounting year. Credit sales occur frequently on terms n/45. The balance of each account receivable is aged on the basis of four time periods as follows: (1) not yet due, (2) up to 6 months past due, (3) 6 to 12 months past due, and (4) 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 uncollectability is ( a ) 1 percent, ( b ) 5 percent, ( c ) 20 percent, and ( d ) 50 percent, respectively.
At December 31, 2011 (end of the current accounting year), the Accounts Receivable balance was $39,500, and the Allowance for Doubtful Accounts balance was $1,550 (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, 2011, follow:
Required:
1. Compute the total accounts receivable in each age category.
2. Compute the estimated uncollectible amount for each age category and in total.
3. Give the adjusting entry for bad debt expense at December 31, 2011.
4. Show how the amounts related to accounts receivable should be presented on the 2011 income statement and balance sheet.
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Date Explanation Debit Credit Balance R. Devens-Account Receivable 3/13/2011 Sale 19,000 19,000 9,000 2,000 5/12/2011 Collection 10,000 7,000 9/30/2011 Collection C. Howard-Account Receivable 11/01/2010 31,000 Sale Collection Collection 31,000 11,000 6,000 06/01/2011 20,000 5,000 12/01/2011 D. McClain-Account Receivable 10/31/2011 Sale Collection 12,000 12,000 4,000 12/10/2011 8,000 T. Skibinski-Account Receivable 05/02/2011 Sale Sale 15,000 10,000 15,000 25,000 10,000 06/01/2011 06/15/2011 Collection 15,000 10,000 07/15/2011 Collection 10/01/2011 Sale 26,000 11/15/2011 12/15/2011 26,000 10,000 14,500 Collection 16,000 Sale 4,500 H. Wu-Account Receivable 12/30/2011 Sale 13,000 13,000
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