Question
Please show computations and explain Preparing an Aging Schedule West Point Inc. uses the aging method to estimate the company's bad debt expense. John Jones,
Please show computations and explain
Preparing an Aging Schedule
West Point Inc. uses the aging method to estimate the company's bad debt expense. John Jones, the president of the company, collected the following information about the company's outstanding accounts receivable and their probability of collection:
Account Age | Amount | Probability of Non-Collection |
0-30 days | $590,000 | 0.75% |
31-60 days | $290,000 | 2.00% |
61-90 days | $140,000 | 3.00% |
91-120 days | $ 80,000 | 5.00% |
Over 120 days | $ 40,000 | 30.00% |
Required:
(i) Calculate bad debt expense, the allowance for doubtful accounts, and the total balance reflected on the balance sheet for accounts receivable.
(ii) Assume that West Point adopts a policy of writing off as worthless all unpaid accounts receivable over 120 days old. How will implementation of this policy impact the net realizable value of the company's accounts receivable?
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