Galenti Company has accounts receivable of $92,500 at March 31, 2005. An analysis of the accounts shows these amounts.
Balance, March 31
Month of Sale 2005 2004
March $65,000 $75,000
February 12,600 8,000
Dec. and Jan. 8,500 2,400
Nov. and Oct. 6,400 1,100
$92,500 $86,500
Credit terms are 2/10, n/30. At March 31, 2005, there is a $2,200 credit balance in allowance for doubtful accounts prior to adjustment. The company uses the percentage of receivables basis for estimating uncollectible accounts. The company's estimates of bad debts are as follows.
Age of accounts Estimated % Uncollectible
Current 2%
1-30 days past due 7%
31-90 days past due 30%
Over 90 days 50%
Instructions:
1-Determine the total estimated uncollectibles.
2-Prepare the adjusting entry at March 31, 2005, to record bad debts expense.
3-Discuss the implications of the changes in the aging schedule from 2004 to 2005.