P6-6 Determining Bad Debt Expense Based on Aging Analysis and Interpreting Ratios LO6-4

IceKreme Inc. makes ice cream machines for sale to ice cream parlours. The following events occurred between April 1 and June 30, 2020:

April		10:		Received an order from Peters Appliances, a wholesaler, for 50 machines.
April		30:		Sold 75 machines to Yuri Inc. on credit.
May		1:		The purchasing manager of Peters Appliances visited IceKremes factory and purchased 54 machines on credit, instead of the 50 machines that were previously ordered.
May		5:		Yuri Inc. paid for the machines purchased on April 30.
May		7:		Sold 20 machines to Cheng Ltd. on credit.
May		10:		Wrote off $14,000 of accounts receivable that were considered uncollectible. These receivables relate to sales made prior to April 1, 2020.
May		15:		Peters Appliances returned two defective machines and paid the amount due.
June		1:		Received $128,000 from Cheng Ltd. on account.
June		30:		Recovered $4,400 from the receivables that were written off on May 10.

Additional information is as follows:

• IceKreme sold all machines at $8,000 per unit.
• All of IceKremes sales were on credit with terms 2/10, n/30.
• IceKremes records included the following items and their balances as at March 31, 2020:

Accounts receivable	$	88,000
Allowance of doubtful accounts (credit balance)		20,400
Net sales		880,000

Required:

1. Prepare the journal entries to record the transactions that occurred from April 1 to June 30, 2020. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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.)

Aging of accounts receivable
	Not yet due	130 days past due	3160 days past due	Over 60 days past due
Estimated % uncollectible	5%	10%	15%	20%

a. Determine the amount of receivables that may not be collectible in the future as on June 30, 2020.

b. Prepare the journal entry to record bad debt expense at June 30, 2020, the companys fiscal year-end. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

3. IceKremes net accounts receivable were $128,000 at June 30, 2019. Calculate IceKremes average collection period for fiscal year 2020. (Use 365 days a year. Round intermediate calculations to 2 decimal places. Round the final answer to 1 decimal place.)