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.

Required:

1.	If YOC has $102,000 of young accounts and $420,000 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 $42,000, how much should be credited to the account?

3.	If YOC’s Allowance for Doubtful Accounts has an unadjusted debit balance of $5,200, how much should be credited to the account?

Answer 1

• All working forms part of the answer
• Working

Working		Young account	Old Account	Total
A	Amount	$          102,000.00	$        420,000.00	$        522,000.00
B	% Uncollectible	3%	40%
C = A x B	Amount Uncollectible	$             3,060.00	$        168,000.00	$        171,060.00 = Allowance for Doubtful Accounts

• Requirement 1

Amount to be reported in the Allowance for Doubtful Accounts = $ 171,060

• Requirement 2

Unadjusted balance	$            42,000.00	Credit
Required Adjusted balance	$          171,060.00	Credit
Amount to be credited	$          129,060.00 = ANSWER

• Requirement 3

Unadjusted balance	$              5,200.00	Debit
Required Adjusted balance	$          171,060.00	Credit
Amount to be credited	$          176,260.00 = Answer	[5200 for debit cancelling & 171060 for credit balance]