Delta, Inc. sells to wholesalers on terms of 2/15, net 30. Delta has no cash sales but 50% of Delta's customers take advantage of the discount. Delta uses the gross method of recording sales and trade receivables. An analysis of Delta's trade receivables balances at December 31 revealed the following:
Age
Amount
Collectible
0-15 days
$100,000
100%
16-30 days
60,000
95%
31-60 days
5,000
90%
Over 60 days
2,500
$500
$167,500
In its December 31 balance sheet, what amount should Delta report for allowance for discounts?
a.
$2,000
b.
$1,675
c.
$1,620
d.
$1,000
Explanation
Choice “d” is correct, $1,000 allowance for discounts at 12/31.
Accounts receivable (0-15 days) $ 100,000
50% of customers take 2% discount x 1%
Allowance for discounts at 12/31 $ 1,000
Can someone explain the logic behind this one? Why do we only calculate the 0-15 days and not everything? Also, I'm sure you all passed
.