Nature Center Jefferson Apothecary Accounts Receivables After working in the natural industry for over a decade, Virginia McHoo founded Jefferson Apothecary in 2010. Fueled by a growing demand for top-quality essential oils, Virginia saw an opportunity to establish a business that could bring therapeutic-grade essential oils to customers at affordable prices. Thus, Jefferson Apothecary designed and built a state-of-the-art facility in Charlottesville, Virginia. It manufactures and markets 25 single oils and 10 blends across the east coast. Jefferson distributes its products to retail customers, consisting of local and regional stores and alternative medicine providers and clinics. Jefferson records revenue upon shipment to its customers at the contracted sales price, and it requires payment within 30 days. Accounting for Trade Receivables Jefferson Apothecary values its accounts receivable at the end of the year using an allowance account. An allowance for doubtful accounts is determined using an analysis of the aging of accounts receivable at the date of the consolidated financial statements, assessments of collectability based on an evaluation of historical and anticipated trends, the financial condition of the company's customers and an evaluation of the impact of economic conditions. Table 1 provides a summary of Jefferson's sales from its top customers, along with its receivables aging schedule from its accounting system. For fiscal year 2020, the average days' sales in trade receivables was 35.7 days, which was slightly below the industry average. Jefferson Apothecary Summary of Revenues and Accounts Receivable Aging Schedule December 31, 2020 THE Days receivables outstanding Year-to-Date Total Accounts Revenues Receivable Current 31-60 61-90 > 90 Vitamins and More 195,000 $ 19,400 $ 16,000 $ 3,400 $ Karma Market 150,000 13,800 8,000 4,500 1,300 Piper's Natural Foods Southeast Pharmacy Nature Center Herbal Remedies 75,000 6,900 4,900 2,000 50,000 4,950 3,000 1,350 600 25,000 2,000 500 1,500 21,000 1,800 1,800 NOVA Grocery Natural Medicine Clinic 6,000 650 650 5,000 700 700 Integrative Clinic Serenity Spa Other small retailers 4,100 500 500 3,000 2,300 536,400 $ 1,800 52,500 $ 35,600 $ 700 500 350 250 Total revenues %24 12.400 $ 2,750 $ 1,750 To estimate the allowance, Jefferson typically reserves 25 percent of the balances that are 31-60 days past due; 50 percent of the balances that are 61-90 days past due; and the entire balance of anything over 90 days past due. At December 31, 2019 (the prior fiscal year-end), gross trade accounts receivable were $47,100, and the allowance for doubtful accounts was estimated at $4,000. Early in the current fiscal year 2020, Jefferson learned that one of its customers, Harmony Therapeutics, filed for bankruptcy. As a result, it wrote off Harmony's entire balance of $1,000 during the year. There were no other write-offs during the fiscal year 2020. Finally, on January 25, 2021, Jefferson learned that one of its customers, Southeast Pharmacy, suffered significant losses due to a fire in its facility. As a result, it is likely that the balanced owed by Southeast Pharmacy will not be paid in full. Jefferson anticipates collecting only 50 percent of the amount owed. Required: 1. At what amount should Jefferson Apothecary value its accounts receivable at December 31, 2020? What amount would Jefferson record as bad debt expense for the year ended December 31, 2020? Where and how would these amount be presented in the financial statements for the year ended December 31, 2020? 2. Now consider what information Jefferson Apothecary should disclose in its notes to the financial statements with respect to trade accounts receivable. Using guidance from your book, the FASB Accounting Standards Codification (ASC Topic 310), and real-world financial statements (e.g., The Coca-Cola Company), prepare an accounts receivable note disclosure. 3. Finally, consider how Jefferson Apothecary should handle the subsequent event involving Southeast Pharmacy. How should Jefferson Apothecary present this event in its 2020 financial statements, if at all? Use guidance from your book (p. 123-124) or the FASB Accounting Standards Codification (ASC Topic 855).