Problem Set #3
*Due Friday, October 21, 2014*
NOTE: This is an individual assignment. As such it is considered inappropriate to share your work with classmates before it is submitted.
Steele City Co.'s balance sheet as of Dec. 31, 2011 included the following information:
Accounts Receivable (net of allowance for doubtful accounts of $37,800) ......... $605,500
The company had credit sales of $1,504,000 during the year 2012. Historically, the company's credit manager has estimated that 1.5% of credit sales will not be collected.
During fiscal year 2012, the company wrote off customer accounts with a face value of $51,320. At the end of the year, a newly hired analyst presented the credit manager with the following breakdown of outstanding accounts receivable and the probability of customer default:
Probability Balance for of not being
Age of Accounts Receivable
0 - 30 days $652,400
31 - 60 days
61 - 120 days
More than 120 days
.970 Accts. Receivable 2012 Balance $932,000
a. If Steele City Co. continues to use its historical percentage-of-credit-sales (income statement focused) approach, how much bad debt expense will it recognize for 2012? What will it report as the ending…