Hachey

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Hachey Company has accounts receivable of $95,100 at March 31, 2007. An analysis of the accounts shows these amounts.

Balance, March 31
Month of Sale 2007 2006
March $65,000 $75,000
February 12,600 8,000
December and January 10,100 2,400
November and October 7,400 1,100
$95,100 $86,500
Credit terms are 2/10, n/30. At March 31, 2007, there is a $2,200 credit balance in Allowance for Doubtful Accounts prior to adjustment. The company uses the percentage of receivables basis for estimating uncollectible accounts. The company’s estimates of bad debts are as shown on page 402.

Estimated Percentage
Age of Accounts Uncollectible
Current 2%
1–30 days past due 7
31–90 days past due 30
Over 90 days 50
Instructions
(a) Determine the total estimated uncollectibles.
(b) Prepare the adjusting entry at March 31, 2007, to record bad debts expense. (c) Discuss the implications of the changes in the aging schedule from 2006 to 2007.

Answer:

(a) Accounts Receivable Amount  %  EstimatedUncollectible
Current $65,000 2.0 $1,300
1–30 days past due 12,600 7.0 882
31–90 days past due 10,100 30.0 3,030
Over 90 days 7,400 50.0 3,700
$8,912

(b)Mar. 31Bad Debts Expense6,712
Allowance for Doubtful Accounts……………………………...6,712
($8,912 – $2,200)

(c) There was an increase from 2006 to 2007, which gives concern to the major increase in 2007. It shows that bad debts are increasing as customers take longer to pay.
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