Question

Suppose the Conner Company has an accounts receivable balance of $100,000 on December 31, 2016. History suggests that of the $75,000 that are current, historically 1% become uncollectible. Also, of the $20,000 that are 31-60 days delinquent, historically 5% are uncollectible. Of the $4,000 that are 61-90 days delinquent, historically 10% are uncollectible, and finally, of the $1,000 that are more than 90 days delinquent, historically 20% are uncollectible. The balance in allowance for doubtful accounts just prior to the year-end adjusting entry was a $1,000 credit. Calculate the amount of the adjusting entry necessary at December 31, 2016 using the aging of the accounts receivable allowance method: A) $2,350. B) $1,350. C) $1,000 D) 0. Answer:

Answer 1

The correct answer is B) $1,350.

Supporting calculations:

Accounts Receivable (a)	Expected % of Uncollectible (b)	Amount of Expected Uncollectibles (a*b)
$75,000	1%	$750
$20,000	5%	$1,000
$4,000	10%	$400
$1,000	20%	$200
	Expected uncollectibles	$2,350
	Less: Credit balance in allowance for uncollectibles	($1,000)
	Amount required for adjusting entry using aging of the accounts	$1,350

Therefore, amount required for adjusting entry using aging method is $1,350.