P$5-6($Algo$)$ Determining Bad Debt Expense Based on Aging Analysis and Interpreting

Ratios LO$5-3,5-4$

IceKreme Inc. makes ice cream machines for sale to ice cream parlours. The following

events occurred between April $1$ and June $30$ of the current year:

April $10$ Received an order from Peter's Appliances, a wholesaler, for $10$ machines.

April $30$ Sold $15$ machines to Yuri Inc. on credit.

May $1$ The purchasing manager of Peter's Appliances visited IceKreme's factory and

purchased $12$ machines on credit, instead of the $10$ machines that were previously

ordered.

May $5$ Yuri Inc. paid for the machines purchased on April $30$

May $7$ Sold $2$ machines to Cheng Ltd$.$ on credit.

May $10$ Wrote off $$12,400$ of accounts receivable that were considered uncollectible.

These receivables relate to sales made prior to April $1$ of the current year.

May $10$ Peter's Appliances paid the amount due to IceKreme.

June $30$ Recovered $$3,200$ from the receivables that were written off on May $10$

Additional information is as follows:

IceKreme sold all machines at $$12,000$ per unit

All of IceKreme's sales were on credit with terms $30$

IceKreme's records included the following items and their balances as at March $31$ of the current year:

Accounts receivable:$$68,000$

Allowance of doubtful accounts $($credit balance$)$ : $$17,000$

Net sales: $$700,000$

Journal entry:

April $10$: no journal entry

April $30$: accounts receivable: $$180,000$

Sales revenue: $$180,000$

May $1$: accounts receivable: $$144,000$

Sales revenue: $$144,000$

May $5$: cash: $$180,000$

Accounts receivable: $$180,000$

May $7$: accounts receivable: $$24,000$

Sales revenue: $$24,000$

Mav $10$: allowance for doubtful accounts: $$12,400$

Accounts receivable: $$12,400$

May $10$: cash: $$144,000$

Accounts receivable: $$144,000$

June $30$: accounts receivable: $$3,200$

Allowance for doubtful accounts: $$3,200$

June $30$: cash: $$3,200$

Accounts receivable: $$3,200$

$2.$ The company uses the aging of accounts receivable method to determine the amount of bad debt expense. The estimated uncollectible rates for the various age groups are as follows:$($hint: use a timeline to keep track of accounts receivable in order to determine the age of these receivables$)$

Analysis of aged accounts receivable

Not yet due: $5\%$

$1-30$ days past due: $10\%$

$31-60$ days past due: $15\%$

Over $60$ dayw past due: $20\%$

$2$a$.$ Determine the amount of receivable that may not be collectable in the future as on june $30$ of the current year

$2$b$.$ Prepare the journal entry to record bad debt expense at june $30$ of the current year, the compant fiscal year $-$ end

June $30$

Bad debt expense: $?$

Allowance for doubtful accounts: $?$

$3.$ IceKreme's net accounts receivable were $$84,000$ at june $30$ of the prior year.

Calculate IceKreme's average collection period for the current fiscal year $($use $365$ days a year. Roynd intermediate calculations to $2$ decimal places. Round the final answer to $1$ decimal place$)$

Average collection period: $?$ Days