Problem 7-12 (Essay)

The Cormier Corporation 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. However, the number of customers taking the full 30 days to pay has increased within the last year. It now appears that fewer than 60% of the customers are taking the discount. Bad debts as a percentage of gross credit sales have risen from the 1.5% of past years to about 4% in the current year.

The controller responded to a request for more information on the deterioration in collections of accounts receivable by preparing the following report:

Allowance for Doubtful Accounts had a credit balance of $43,300 on June 1, 2016. The Cormier Corporation 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 2016-17 fiscal year amounted to $4 million. Write offs of bad accounts during the year totalled $145,000.

Pruparlion of Total {'51:} 00.00 15.00 0.00 5.00 2.50 1.50 Age Categories not yet due less than 30 days past due 30 to 50 days past due 61 to 120 days past due 121 to 130 days past due mare than 180 days past due Pruba hilit'gr (If Cullectinn {9'11} 99.0 96.5 95 .0 91 .0 ?0.0 20.0