Blackboard Exercise 4
The Killdeer Company has Accounts Receivable of $2,400,000 as of December 31. They need to estimate their allowance for doubtful accounts for their balance sheet. According to the trial balance, the allowance for doubtful accounts already has a balance of $50,000.
Killdeer had $2,000,000 in credit sales during the month. The new guy in the Accounts Receivable Department has put together an aging schedule of the Accounts Receivable:
Amount
Probability of collection
Not yet due
1,500,000
99 percent
overdue 1 – 30 days
500,000
98 percent
overdue 31 – 60 days
200,000
95 percent
overdue 61 – 120 days
100,000
90 percent
overdue 121 – 180 days
50,000
80 percent
overdue over 180 days
50,000
60 percent
Required:
Estimate Killdeer’s bad debt expense for the month of December, and its allowance for doubtful accounts at December 31, if Killdeer calculates its bad debt expense as 1.4 percent of all credit sales (the income statement method).
Calculate Killdeer’s bad debt expense for the month of December, and its allowance for doubtful accounts at December 31, assuming Killdeer uses its Accounts Receivable Aging Schedule to estimate its allowance for doubtful accounts (the balance sheet method).
