Using an Aging Schedule to Account for Bad Debts

Rough Stuff is a distributor of large rocks. It sells on credit to commercial landscaping companies and extends terms that require customers to pay in 60 days. For accounts that are not overdue, Rough Stuff has found that there is a 90% probability of collection. For accounts up to one month past due, the likelihood of collection decreases to 75%. If accounts are between one and two months past due, the probability of collection is 65%, and if an account is over two months past due, Rough Stuff estimates only a 25% chance of collecting the receivable.

On December 31, 2017, the balance in Allowance for Doubtful Accounts is $34,590. The amounts of gross receivables, by age, on this date are as follows:

Category	Amount
Current		$200,000
Past due:
Less than one month		60,300
One to two months		35,000
Over two months		45,000

Required:

1. Prepare a schedule to estimate the amount of uncollectible accounts at December 31, 2017.

Rough Stuff
Aging Schedule to Account for Bad Debts
Category	Amount	Estimated Percent Uncollectible	Estimated Amount Uncollectible
Current	$200,000	%	$
Past due:
Less than one month	60,300
One to two months	35,000
Over two months	45,000
Totals	$340,300

2. Rough Stuff knows that $40,000 of the $45,000 amount that is more than two months overdue is due from one customer that is in severe financial trouble. It is rumored that the customer will be filing for bankruptcy in the near future. As controller for Rough Stuff, how would you handle this situation?

3. Show how accounts receivable would be presented on the December 31, 2017, balance sheet.

Rough Stuff
Partial Balance Sheet
December 31, 2017
Current Assets