Solution-Compute the correct balance for the allowance

Compute the correct balance for the allowance account

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Reference no: EM131704805

Question - Estimating Uncollectible Accounts by Aging Receivables

Rainy Day Company, a wholesaler, uses the aging method to estimate bad debt losses. The following schedule of aged accounts receivable was prepared at December 31, 20Y6.

Age of Accounts	Amount
0-30 days	$478,600
31-60 days	172,300
61-90 days	79,200
91-120 days	21,300
Over 120 days	8,300
	$759,700

The following schedule shows the year-end receivables balances and uncollectible accounts experience for the previous five years.

Year	Year-End Receivables	0-30 days	31-60 days	61-90 days	91-120 days	Over 120 Days
20Y5	$780,700	0.3%	0.9%	8.7%	52.1%	84.1%
20Y4	750,400	0.5	0.8	9.0	49.2	80.3
20Y3	681,400	0.4	1.1	9.5	53.7	82.0
20Y2	698,200	0.4	1.0	9.9	51.3	78.5
20Y1	723,600	0.2	1.1	8.9	49.9	85.2

The unadjusted Allowance for Bad Debts balance on December 31, 20Y6, is $30,124.

1. Compute the correct balance for the allowance account based on the average loss experience for the last five years. Round the average percentage loss values to two decimal places as you perform the intermediate calculations required to calculate the estimated uncollectible amount. Round dollar amount calculations and your final answer to the nearest dollar.

2. Prepare the appropriate end-of-year adjusting entry.

Reference no: EM131704805

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Compute the correct balance for the allowance account

Reference no: EM131704805

Reference no: EM131704805

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