CA7.5 (L03) (Bad-Debt Reporting Issues) Valasquez SA sells office equipment and supplies to many organizations in the city and surrounding area on contract terms of 2/10, n/30 In the past, over 75% of the credit customers have taken advantage of the discount by paying within 10 days of the invoice date. www.freehookslides.com The number of customers taking the full 30 days to pay has increased within the last year. Current indications are that less than 60% of the customers are now taking the discount Bad debts as a percentage of gross credit sales have risen from the 1,5% provided in past years to about 4% in the current year The controller has responded to a request for more information on the deterioration in collections of accounts receivable with the report reproduced below. Valasquez SA Finance Committee Report-Accounts Receivable Collections May 31, 2019 The fact that some credit accounts will prove uncollectible is normal. Annual bad debt write-offs have been 1.5% of gross credit sales over the past five years. During the last fiscal year, this percentage increased to slightly less than 4%. The current Accounts Receivable balance is R$1,600,000. The condition of this balance in terms of age and probability of collection is as follows. Proportion of Total Age Categories Probability of Collection 68% not yet due 99% 15% less than 30 days past due 96%% 8% 30 to 60 days past due 95% 5% 61 to 120 days past due 91% 27% 121 to 180 days past due 70% 1%% over 180 days past due 20% Allowance for Doubtful Accounts had a credit balance of R$43,300 on June 1. 2018. Valasquez SA has provided for a monthly bad debt expense accrual during the current fiscal year based on the assumption that 4% of gross credit sales will be uncollectible Total gross credit sales for the 2018-2019 fiscal year amounted to R$4,000,000. Write-offs of bad accounts during the year totaled R$145,000 www.freebookslides.com Instructions Prepare an accounts receivable aging schedule for Valasquez SA using the age categories identified in the controller's report to the finance committee showing: 1. The amount of accounts receivable outstanding for each age category and in total 2. The estimated amount that is uncollectible for each category and in total b. Compute the amount of the year-end adjustment necessary to bring Allowance for Doubtful Accounts to the balance indicated by the age analysis. Then, prepare the necessary journal entry to adjust the accounting records