Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The Rose Company sells office equipment and supplies to many organizations in the city and surrounding area on contract terms of 2/10, n/30. In the

image text in transcribed

The Rose Company 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 advantages of the discount by paying within 10 days of the invoice date. The number of customers taking the full 30 days to pay has increased within the last year. Current indications are that less than 60% of the customers are now taking the discount. Bad debts as a percentage of gross credit sales have risen from the 1.5% provided in past years to about 4% in the current year. The controller has responded to a request for more information on the deterioration in collections of accounts receivable with the report reproduced below. THE ROSE COMPANY Finance Committee Report - Accounts Receivable Collections May 31, 2015 The fact that some credit accounts will prove uncollectible is normal. Annual bad debt write-offs have been 1.5% of gross credit sales over the past 5 years. During the last fiscal year, this percentage increased to slightly less than 4%. The current Accounts Receivable balance is Rs. 1,600,000. The condition of this balance in terms of age and probability of collection is as follows: Proportion of Total 68% 15% 8% 5% 2.5% 1.5% Age Categories not yet due less than 30 days past due 30 to 60 days past due 61 to 120 days past due 121 to 180 days past due over 180 days past due Probability of Collection 99% 96.5% 95% 91% 70% 20% The Allowance for Doubtful Accounts had a credit balance of Rs. 43,300 on June 1, 2014. Required: a). Prepare an accounts receivable aging schedule for The Rose Company using the age categories identified in the controller's report to the Finance Committee showing: i). the amount of accounts receivable outstanding for each age category and in total, and ii). the estimated amount that is uncollectible for each category and in total. b). Calculate the amount of the year-end adjustment necessary to bring the Allowance for Doubtful Accounts to the balance indicated by the age analysis. Then prepare the necessary journal entry to adjust the accounting records

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Integrated Audit Practice Case

Authors: David S. Kerr, Randal J. Elder, Alvin A. Arena

6th Edition

0912503564, 9780912503561

More Books

Students also viewed these Accounting questions