A Company Has the Following Unadjusted Account Balances at December

question 87

Essay

A company has the following unadjusted account balances at December 31,of the current year; Accounts Receivable of $183,400 and Allowance for Doubtful Accounts of $1,600 (credit balance).The company uses the aging of accounts receivable to estimate its bad debts.The following aging schedule reflects its accounts receivable at the current year-end:
$$\begin{array} { l l l } &&\text { Estimated } \\&&\text { Uncollectible } \\\text { Account Age }&\text { Balance }&\text { Percentage }\\\hline \text { Current (not yet due) } & \$ 106,000& 2.0 \% \\\text { 1-30 days past due } &54 , 0 0 0 & 4.0 \% \\\text { 30-60 days past due } &12,000& 10.0 \% \\61 - 90 \text { days past due } & 8,500 & 25.0 \% \\\text { Over 90 days past due } &2 , 9 0 0 & 75.0 \% \\\text { Total } & \underline { \$183,400 } &\end{array}$$
Calculate the amount of the Allowance for Doubtful Accounts that should appear on the December 31,of the current year,balance sheet.

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Definitions:

Notes Receivable

Claims against others for money, goods, or services evidenced by notes, promises to pay, or receipts.

Bad Debt Expense

An expense recognized by businesses for accounts receivable that are not expected to be collected.

Credit Basis

The terms and conditions under which credit is extended by a lender to a borrower, including repayment schedules and interest rates.

Operating Expense

Expenses incurred during the normal operation of a business, excluding costs related to production or direct services.