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 >90 Days receivables outstanding Year-to-Date Total Accounts Revenues Receivable Current 31-60 61-90 $ 195,000 $ 19,400 $ 16,000 $ 3,400 $ S 150,000 13,800 8,000 4,500 1,300 75,000 6.900 4,900 2,000 50,000 4,950 3,000 1980 1,350 600 25,000 2,000 500 21,000 1,800 2009 1,800 6,000 650 650 5,000 700 700 4,100 500 500 3,000 2.300 1,800 700 500 350 $ 536,400 $ 52,500 $ 35,600 $ 12,400 $ 2,750 $ Vitamins and More Karma Market Piper's Natural Foods Southeast Pharmacy Nature Center Nature Herbal Remedies NOVA Grocery Natural Medicine Clinic Integrative Clinic Serenity Spa Other small retailers Total revenues 1,500 250 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). Jefferson Apothecary Acenunts Receivables After working in the natural industry for over a decadk, Virginia McHoo founded Jefferson Apothecary in 2010. Fueled by a growing demand for lup-quality essential oils, Virginia sew an opportunity to establish a business that could bring therapeutic-grade essential oils to customs at aflicordiable prices. Thus, Jefferson Apothecary designed and built a state-of-the-art facility in Charlottesville, Virginin, It marvinctures and markets 25 single oils and 10 blends across the enst coast. Jellerson distr.bulos ils products to retail custoas, consisting of local and regional stores and alternative medicine providers and clinics. Jefferson records revenue upon shipment to its customers at the contacted anles price, and it requirea payment within 30 days. Accounting for Trade Receivables Jellson Apotbecary values its accounts receivable at tluc cud of the year using an allowance account. An allowance kur doubtful accounts is determined using an analysis of the aging of accounts receivable at the date of the consolidnted financial statements, asessments of collectability based on an evaluation of historical and anticipated Licods, the financial conditiva of the commany's customers and an evaluation of the inmact of economic conditions. Table provides a summary of Jellerson's sales from its bcp customers, along with its receivables ay iny schedule from its accounting system. For fiscal year 2020, the average days' sales in trade Iecavables was 35.7 days, which was slightly below the industry average. Jefferson Apothecary Summary of Revenues and Accounts Receivable Aging Schedule December 31, 2001 Days recetables outstanding Year-to-Det Total Accounts Revenues Recebe Current 31-60 61.90 195.000 19,400 $ 16,00 $3,400 $ $ $ 190,000 1:14 8.com 45.0 1,330 75.000 6.900 4.900 2.000 . 491 LU 1950 25.000 2.000 500 21.000 1,800 1 200 6,00 651 6511 5.000 700 1,100 3.000 2.300 1.800 700 900 330 $ 56,400 S 9,50 S 6 S 12.40 $ 2,1VOS Vitamins and More Karma Merkel Market Piper's Natural Foods Southeast Pharmacy Nature Comer Herbal Remedies NOWA GH Natural Medicine Clinic integrative Clin Serenity Spa Other small retailers THES 1,500 To estimate the allowance, Jetletsont typ ally cserws 25 perccutofile banes that are 31-60 days past Ist due, 50 percent of the balances that are 61-90 days past due; and the entire balance of anything over XI days past ce, At Tecember 31, 2019 (the prior fiscal yenr-end), gross trade accounts towable wcze $47,100, and be allowance lor doublul accounts was estimated at $4,000, Early in the current fiscal year 2020, Jefferson kanced that one of its customers, Harmony Therapeutics, liled for bankruptcy. As a result, il rule of Harmony's entire balance of $1,000 during the year. There were no other write-offs during the fscal year 2020 2. Now consider what information Jefferson Apothecary about disclose in its notes to the financial statements with respect to take accounts receivable. Using guidance from your ASC ), and real- Tinancial Statemcals ice. The Coca-Cola Company), prepare an accounts receivable pole disclosure Finally, on January 25, 2021, Jellason 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 perol of the amoumlowed Required: 1. Al wisal amount should Jollerson Apothecary value its accounts ruocivable al December 31, 20202 3. Finally, consider how Jeliersun Apothecary shulu hanile the subsequent event involving Southeast Pharmacy, How should Jefferson Apothecary present this event in its 2020 Tinancial state cols, il at all? Use guidance liom your book (p.123-134) of the FASB Accounting Standards Codification (ASC Topic 855) What amount would Jefferson recond as had deht expense for the year ended December 31, 2020 White and bow would these amount be presented in the financial statements for the year ended December 31, 2020