Week 10 — What the Customers Owe: Estimating, Writing Off, and Earning Interest

Assignment 9 of the term — estimate the bicycle shop's uncollectible accounts, record the year-end adjustment and a write-off, figure the interest on a note, and set a founder straight about when a bad debt becomes an expense.

This adaptive assignment uses a coaching dialogue to help you turn a first attempt into a clear, evidence-based report. You remain the author. The coach asks questions, checks the reasoning you show, and waits for you to revise before it produces the required report. This week's lecture tutorial, quiz, discussion, and Accounting Workshop practise the same ideas from other angles; this assignment is where you put them together. It builds on Week 4, where you learned expense recognition and made the adjusting entries that put each expense in the period it belongs to.

The task

This week's material is pinned. The direct write-off method records bad debt expense only when the business gives up on a specific account and writes it off; it is not acceptable under GAAP when bad debts are material. The allowance method estimates the uncollectible accounts at the end of each period and records bad debt expense with a credit to Allowance for Doubtful Accounts, a contra asset with a credit balance. An aging schedule groups receivables by how long they are past due and applies a higher estimated uncollectible percentage to older groups; its total is the balance the allowance should have. Bad debt expense is the amount that brings the allowance to that balance. A write-off under the allowance method debits Allowance for Doubtful Accounts and credits Accounts Receivable, leaving net realizable value unchanged. Interest on a note is Interest = Face × Rate × Time, where Time is the fraction of a year.

The running case is an illustrative, unnamed bicycle repair and sales shop, organized as a corporation by two founders; it describes no real business. At the end of Year 3, its customers owe it $40,000, sorted by age, and Allowance for Doubtful Accounts already has a $260 credit balance. Later, the shop gives up on one customer's $350 balance. Separately, a youth cycling program signs a note to the shop.

One of the founders (an illustrative person) sends you this message: "Why record any bad debt now? Nobody has refused to pay us yet, so let's record the loss when a customer actually stops paying. And when we write off that $350, that's another $350 of expense on top of whatever you record now. The cycling program's note is at 6 percent, so it'll pay us $360 of interest." Your job is to answer the way this course would, starting from four small calculations on the shop's books.

Work these four problems, showing your arithmetic:

1. The bicycle shop's receivables at the end of Year 3 are $28,000 not yet due at 1 percent, $7,000 that are 1 to 30 days past due at 4 percent, $3,000 that are 31 to 60 days past due at 10 percent, and $2,000 over 60 days past due at 30 percent. What balance should Allowance for Doubtful Accounts have?
2. The bicycle shop's aging schedule requires an allowance of $1,460, and Allowance for Doubtful Accounts already has a $260 credit balance before the year-end adjustment. How many dollars of bad debt expense does the adjustment record?
3. The bicycle shop's Accounts Receivable is $40,000 when it writes off a customer's $350 balance under the allowance method. How many dollars of Accounts Receivable remain after the write-off?
4. A youth cycling program signs a $6,000, 6 percent, 3-month note to the bicycle shop. Using Interest = Face × Rate × Time, how many dollars of interest does the note earn by maturity?

Beside each answer, add one brief interpretation:

• Problem 1: name the age group that supplies the largest single estimate and explain why older receivables get higher percentages; then say whether the total is the year's expense or the balance the allowance should have.
• Problem 2: write the year-end adjustment as a journal entry, debit first and credit second; give the net realizable value of receivables after it; and say why the entry does not touch Cash.
• Problem 3: write the write-off as a journal entry; give the allowance and the net realizable value after it; and describe, by its effect, how the direct write-off method would record the same $350.
• Problem 4: give the note's maturity value; write the entry the shop records when the program pays at maturity; and explain why the interest is not a full year's.

Explain it to a non-expert

The founder means well and has three things wrong. Write a 3–5 sentence message that explains why the shop records an estimate of bad debts in Year 3, the year of the sales, why the later $350 write-off is not a second expense, and why the note earns less than a full year's interest. Name one limit, such as that the aging percentages are the shop's own estimates a lender would want explained, or that this course gives no tax advice. Explain any technical term in everyday words. More than one good answer is possible.

For a different, ungraded example, imagine a friend who runs a babysitting business and says, "I only lose money on a family that skips out once I give up on them, so I'll worry about it then." Model answer: "You lost that money when you did the work for a family that will not pay, even if you only find out later. Setting aside a small share of what families owe you, based on how often bills have gone unpaid before, shows you honestly what you will really collect this season. A fair caveat: that share is a guess from your own history, so check it against what actually happens."

Use that pattern for the founder, with your own wording and evidence.

Part 1 — Student instructions

1. Draft all four answers, the four brief interpretations, and your message to the founder before opening a chatbot.
2. Open any course-approved chatbot. Copy the entire Coach Prompt box, including its first and last marker lines, and paste it as one message. The coach will ask for your draft and then work one question at a time.
3. Reply in your own words. Show calculations when asked. Use the coach's feedback to revise at least one calculation or explanation, even if your first attempt was correct.
4. Continue until the prompt's exit condition is met.
5. Save the chat's share link and copy the final report exactly as the coach gives it.

The chatbot is a coach, not a ghostwriter. It must draw out your reasoning rather than write the work for you. Add up the debits and credits of every entry it mentions yourself, and check every claim it makes about a standard against Chapter 10 before you use it.

Coach Prompt

COPY EVERYTHING BELOW THIS LINE
ROLE: You are a careful learning coach for an introductory financial accounting course. Draw out and challenge MY thinking about receivables, the allowance method, and simple interest. Do not write my assignment for me, do not invent work I did not show, and never invent a standard, a rule, a rate, a statistic, or a quotation. Every journal entry I write must list the debit first and the credit second, and its debits must equal its credits. Describe the direct write-off and allowance methods by their effects, never as better or worse. Give no tax or investment advice.

ASSIGNMENT: Work through these four problems in order, one at a time. Do not invent, replace, or reorder a problem. The pinned facts: the direct write-off method records bad debt expense only when the business gives up on a specific account, and it is not acceptable under GAAP when bad debts are material. The allowance method estimates the uncollectible accounts at the end of each period and records bad debt expense with a credit to Allowance for Doubtful Accounts, a contra asset with a credit balance. An aging schedule's total is the balance the allowance should have, and bad debt expense is the amount that brings the allowance to that balance. A write-off under the allowance method debits Allowance for Doubtful Accounts and credits Accounts Receivable and leaves net realizable value (Accounts Receivable minus the allowance) unchanged. Interest = Face x Rate x Time, where Time is the fraction of a year. The bicycle shop is illustrative.
PROBLEM P1: The bicycle shop's receivables at the end of Year 3 are $28,000 not yet due at 1 percent, $7,000 that are 1 to 30 days past due at 4 percent, $3,000 that are 31 to 60 days past due at 10 percent, and $2,000 over 60 days past due at 30 percent. What balance should Allowance for Doubtful Accounts have?
PROBLEM P2: The bicycle shop's aging schedule requires an allowance of $1,460, and Allowance for Doubtful Accounts already has a $260 credit balance before the year-end adjustment. How many dollars of bad debt expense does the adjustment record?
PROBLEM P3: The bicycle shop's Accounts Receivable is $40,000 when it writes off a customer's $350 balance under the allowance method. How many dollars of Accounts Receivable remain after the write-off?
PROBLEM P4: A youth cycling program signs a $6,000, 6 percent, 3-month note to the bicycle shop. Using Interest = Face × Rate × Time, how many dollars of interest does the note earn by maturity?
After the four results, I must briefly interpret each one: for P1, the age group that supplies the largest single estimate, why older receivables get higher percentages, and whether the total is the expense or the allowance's required balance; for P2, the year-end adjustment as a journal entry, the net realizable value after it, and why it does not touch Cash; for P3, the write-off as a journal entry, the allowance and the net realizable value after it, and how the direct write-off method would record the same $350, described by its effect; for P4, the maturity value, the entry at maturity, and why the interest is not a full year's. I must then write a 3-5 sentence message to a founder who wants to record bad debts only when customers stop paying, thinks the $350 write-off is a second expense, and thinks the note pays $360 of interest, with one limit. I must explain technical terms in everyday words.

SCORING CRITERIA: Score only evidence I supply: computing the receivables figures (40 points), recording and classifying the entries (32 points), clarity for a non-expert reader (16 points), and showing work so it can be checked (12 points). For each of P1-P4, give 2, 1, or 0 evidence units per criterion; one unit is worth 5 computing points, 4 recording points, 2 clarity points, or 1.5 showing-work points. Sum all four problems within each criterion. Count my message to the founder only with P4, not again with P1-P3.
COMPUTING UNITS: A correct dollar amount = 2; the right figures and operation with only an arithmetic slip = 1; a missing value or the wrong figures or operation = 0. Do not penalize an alternative valid method or equivalent correct notation.
RECORDING UNITS: For P1-P3 separately, an interpretation that meets every part named for that problem = 2; some but not all parts = 1; none = 0. For P4, BOTH the maturity value and the collection entry with the reason the interest is not a full year's, AND a message to the founder that covers when bad debt expense is recorded, why the write-off is not a second expense, and the note's interest, with a named limit = 2. If full P4 evidence is absent but at least one accurate substantive part appears, give 1. No accurate reading = 0; naming a term alone does not earn a unit, and a write-off recorded as bad debt expense under the allowance method, the full $1,460 booked as the expense, a year-end adjustment that touches Cash, an entry that does not balance, or a full year's interest on the 3-month note is not accurate. An arithmetic slip alone is not a recording error.
CLARITY UNITS: For each problem, labeled evidence understandable to someone new to accounting, with technical terms explained = 2; intelligible evidence that needs rereading because of ambiguity or jargon = 1; absent or unintelligible evidence = 0. Include the message to the founder with P4 if submitted. Missing reasoning alone does not lower clarity for otherwise clear submitted work.
SHOWING-WORK UNITS: For each problem, checkable figures and steps = 2; a relevant but incomplete figure or step = 1; a result alone or no method = 0. A visible method stays checkable despite an arithmetic slip.

Do NOT invent grading rules.

DIALOGUE RULES: Ask exactly one question per message and wait for my reply. Start by asking for my complete first attempt. Build each next question from my exact words. Probe an unsupported claim and ask me to examine its evidence. Keep the conversation focused on questions rather than completed work.

ENGAGEMENT GUARDS: A greeting, copied prompt, yes/no reply, or one-word reply is not a substantive exchange. Do not flatter or accept agreement as evidence. Praise only a concrete move I made. If evidence is missing, say what is missing and ask for it. Require a real revision plus a short reflection on why the revision is better. Do not issue the report early.

EXIT CONDITION: Continue until at least five substantive exchanges have occurred AND I have supplied all four results and their brief interpretations AND written my message to the founder AND revised at least one calculation or explanation AND reflected on the revision. Stop only after whichever requirement happens last.

REPORT: After the exit condition is satisfied, output exactly these labelled lines in this order. Replace X with the exact earned score; it may end in .5 and must not be rounded to a whole number. Base every line only on evidence in this chat; write "Not supplied" for missing evidence and never raise the score for polished chatbot prose.
STUDENT'S SCORE: X/100
EVIDENCE FOR THE SCORE: [specific evidence from my calculations and reasoning]
REVISION MADE: [what I changed and why]
STRENGTH: [one earned strength]
NEXT STEP: [one concrete improvement]
Then tell me to submit this report, my revised work, and the share link.
COPY EVERYTHING ABOVE THIS LINE

Deliverables

Submit these three items in the assignment entry:

• your revised work with all four results, their brief interpretations, the four journal entries, and your message to the founder — written, or recorded as audio or video with a transcript, or as a labelled spreadsheet of the aging schedule and the entries with a short explanation; every form is graded by the same scoring criteria;
• the coach's five-line report; and
• the conversation share link.

Submit in any accessible file type or as a link; a recorded response may be submitted as audio or video with a transcript, or as text.

Equivalent route (no AI required)

This route assesses the same Week 10 skills — estimating the required allowance with an aging schedule, computing bad debt expense as the amount that fills the allowance to that balance, recording the year-end adjustment and a write-off as balanced journal entries, showing that a write-off leaves net realizable value unchanged, comparing the two methods by their effects, and computing the simple interest on a note — for comparable time and effort, about 60 to 90 minutes, the same as the coached route. Complete the same four problems, the four brief interpretations, the four journal entries, and the message to the founder. Then audit your own first draft against the attached scoring criteria, criterion by criterion, and write a second draft. Add a 150–200 word revision memo that names one calculation or explanation you changed, the evidence that prompted the change, and one question you still have about this week's material. Submit the revised work, your completed criteria checklist, and the revision memo in the assignment entry; together they replace the share link and the coach's report. This route uses the same scoring criteria and the same points, with no penalty for choosing it.

How you'll be graded

The full analytic rubric is attached to this assignment in Canvas.

Academic integrity and AI use

The calculations, entries, reasoning, revision, and final report must be your own. Do not ask the chatbot to create the assignment or add evidence you did not produce, and do not let it record the $350 write-off as an expense, book the full $1,460 as the year's expense, or figure a full year's interest on a 3-month note. Submit an honest share link from your own dialogue. The equivalent route keeps the same workload and evidence and requires no AI account.

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