Question

At January 1, 2021, Tanner Company reported accounts receivable of $262,750 and had an allowance for doubtful accounts with a $13,690 credit balance. During 2021, Tanner Company had sales revenue of $531,250, recoveries of $6,190, cash collections from credit customers of $493,580 (the $493,580 does not include the recovery), and bad debt expense of $20,870. During 2021, Tanner Company wrote-off accounts receivable as being uncollectible (note - the amount of the write-offs has been intentionally omitted from this problem).

At December 31, 2021, Tanner Company prepared the following aging schedule:

Accounts Receivable % Uncollectible

not past due $146,100 3%

1-45 days past due 56,400 9%

46-90 days past due 38,600 11%

91-135 days past due 21,850 ?

over 135 days past due 23,930 40%

Calculate the percentage estimated to be uncollectible for the accounts receivable that are 91-135 days past due.

Answer 1

Solution:

Company is following Allowance for Doubtful Account Method

Under Allowance for Doubtful Debt method, the company uses an estimate for allowance for doubtful debt by using specified method and accordingly book Bad Debt Expenses for the period.

Allowance method creates bad debts expenses before the company knows specifically which customers will not pay on the basis of prior history and prior experience.

On the basis of prior years’ experience company can reasonably estimated what percentage of accounts receivable measure will not be collected.

Estimated Uncollected Accounts Expense is adjusted with the balance in the account of Allowance for Doubtful Account.

The credit balance amount in the Allowance for Doubtful Account is given in the question $13,690

Bad Debt Expense recorded during 2021 = $20,870

It means the amount of Allowance for Doubtful Account is adjusted to $34,560 (13,690 + 20,870)

Hence, the total Estimated Uncollectible Accounts Expense should be $34,560

	Accounts Receivable (A)	% Uncollectible (B)	Estimated Uncollectible Amount (A*B)
Not Past Due	$146,100	3%	$4,383
1-45 days past due	$56,400	9%	$5,076
46-90 days past due	$38,600	11%	$4,246
91-135 days past due	$21,850	P	$21,850*P
over 135 days past due	$23,930	40%	$9,572
Total Uncollectible Amount (Refer Working and explanation)			$34,560

We need to make an equation to find out the percentage (P) i.e.

4383 + 5076 + 4246 + 21850*P + 9572 = $34,560

23,277 + $21,850*P = $34,560

21,850*P = 34,560 – 23,277 = $11,283

P = $11,283 / 21,850 = 0.5164 or 51.64%

The percentage estimated to be uncollectible for the accounts receivable that are 91-135 days past due is 51.64%

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