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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Estimating doubtful accounts

Performance Bike Co. is a wholesaler of motorcycle supplies. An aging of the company’s accounts receivable on December 31 and a historical analysis of the percentage of uncollectible accounts in each age category are as follows:

Age Interval Balance Percent Uncollectible
Not past due $3,250,000 0.8%
1-30 days past due 1,050,000 2.4
31-60 days past due 780,000 7.0
61-90 days past due 320,000 18.0
91-180 days past due 240,000 34.0
Over 180 days past due 150,000 85.0
$5,790,000

Estimate the proper balance of the allowance for doubtful accounts as of December 31.

To determine

Analysis of receivables method:

A method of determining the estimated uncollectible receivables based on the age of individual accounts receivable is known as analysis of receivables method. This method is otherwise known as aging of receivables method. Under analysis of receivables method, estimated bad debts would be treated as the desired adjusted balance for allowance for doubtful accounts.

To estimate: The proper balance of the allowance for doubtful accounts as of December 31.

Explanation

Estimate the proper balance of the allowance for doubtful accounts as of December 31.

Age interval Balance Estimated uncollectible accounts
Percent Amount
Not past due $3,250,000 0.8% $26,000
1-30 days past due $1,050,000 2.4% $25,200
31-60 days past due $780,000 7...

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