Young and Old Corporation (YOC) uses two aging categories to estimate uncollecti

Question

Young and Old Corporation (YOC) uses two aging categories to estimate uncollectible accounts. Accounts less than 60 days are considered young and have a 3% uncollectible rate. Accounts more than 60 days are considered old and have a 40% uncollectible rate.

1) If YOC has $114,000 of young accounts and $360,000 of old accounts, how much should be reported in the Allowance for Doubtful Accounts?

2) If YOC’s Allowance for Doubtful Accounts currently has an unadjusted credit balance of $36,000, how much should be credited to the account?

3) If YOC’s Allowance for Doubtful Accounts has an unadjusted debit balance of $4,600, how much should be credited to the account?

Explanation / Answer

1) The Allowance for Doubful Accounts should be
3% of 114000 which is less than 60 days old and has 3% of uncollectible rate
114000*3% = 3420
40% of 360000 which is more than 60 days old and has 40% of uncollectible rate
360000*40% = 144000
So Total allowance for doubtful accounts should be 3420+144000 = 147420

2) If the allowance for Doubtful Accounts has an unadjusted credit balance of 36000 then we need to credit the balance from the total allowance for doubtful accounts 147420.
So, 147420-36000 = 111420 will be credited to the account.

2) If the allowance for Doubtful Accounts has an unadjusted debit balance of 4600 then we need to credit the amount of total allowance for doubtful accounts 147420 and the debit balance amount of 4600.
So, 147420+4600 = 152020 will be credited to the account

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