Question

Problem 7-03 Bramble Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Bramble's Accounts Receivable account was $590,400 and Allowance for Doubtful Accounts had a credit balance of $40,320. The year-end balance reported in the balance sheet for Allowance for Doubtful Accounts will be based on the aging schedule shown below. Probability Days Account Outstanding Less than 16 days Between 16 and 30 days Between 31 and 45 days Between 46 and 60 days Between 61 and 75 days Over 75 days (to be written off ) Amount $312,000 116,300 84,500 40,600 21,600 15,400 Collection 0.96 0.90 0.86 0.80 0.55 0.00 What is the appropriate balance for Allowance for Doubtful Accounts at year-end? Balance for Allowance for Doubtful Accounts

Answer 1

Answer to Problem 7-03: Calculation of Balance of Allowance for Doubtful Accounts: Days Account Outstanding Less than 16 days Between 16 and 30 days Between 31 and 45 days Between 46 and 60 days Between 61 and 75 days Over 75 days (to be written off) Amount 312,000 116,300 84,500 40,600 21,600 15,400 Probability of Collection 0.96 0.90 0.86 0.80 0.55 0.00 Probability of Uncollection (1 - Probability of Collection) 0.04 0.10 0.14 0.20 0.45 1.00 Uncollectible (Amount * Probability of Uncollection) 12,480 11,630 11,830 8,120 9,720 15,400 69,180 Balance for allowance for doubtful accounts is $69,180