Case No.

Vasquez Company sells office equipment and supplies to many companies in the city and surrounding

area on contract terms 2/10, n/30. In the past, over 75% of the credit customers have taken advantage
of

the discount by paying within 10 days of the invoice date.

The number of customers taking full 30 days to pay has increased within the last year. Current
indications

are that less than 60% of the customers are now talking the discount. Bad debts as a percentage of gross

credit sales have risen from 1.5% provided in the past years to about 4% in the current year.

The controller has responded to a request for more information on the deterioration in the collections
of

accounts receivable with the report reproduced below.

Finance Committee Report (provided by Controller)

Accounts Receivable Collections

May 31, 2015

The fact that some credit accounts will prove uncollectible is normal. Annual bad debt write-offs have

been 1.5% of gross credit sales over the past five years. During the last fiscal year, this percentage

increased to slightly less than 4 %. The current accounts receivable balance is $160,000. The condition of

this balance in terms of age and probability of collection is as follows.

Proportion of total Age categories Probability of collection

68% Not yet due 99%

15% Less than 30 days past due 96.5%

8% 30 to 60 days past due 95%

5% 61 to 120 days past due 91%

2.5% 121 to 180 days past due 70%

1.5% Over 180 days past due 20%

Allowance for doubtful accounts had a credit balance of $43,000 on June 1, 2014. Vasquez Company has

provided for a monthly bad debt expense accrual during the current fiscal year based on the assumption

that 4% of gross credit sales will be uncollectible. Total gross credit sales for the 2014-15 fiscal year

amounted to $4,000,000. Write-offs of debt accounts during the year totaled $145,000.