Aging Schedule to Account for Bad Debts Rough Stuff is a distributor of large rocks. It sells on…

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, 2008, the credit balance in Allowance for Doubtful Accounts is $34,590. The

amounts of gross receivables, by age, on this date are as follows:

Required

1. Prepare a schedule to estimate the amount of uncollectible accounts at December 31, 2008.

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, 2007, balance sheet.