Question

Tamara Corporation had a balance in the allowance for doubtful accounts of $15,000 on 1/1/07. During 2007, it wrote off $10,800 of accounts and collected $3,150 on accounts previously written off. The balance in accounts receivable was $300,000 at 1/1 and $360,000 at 12/31. What should Tamara report as its allowance for doubtful accounts at 12/31/07?

1) 83
2) 15,000
3) 510,350
4) 18,000

Answer 1

To calculate the year-end balance of the allowance for doubtful accounts, the beginning balance, adjustments, write-offs, and recoveries should be considered; however, without the current year's estimation, we cannot determine the exact balance from the choices provided.

Step-by-step explanation:

The question asks how to determine the balance in the allowance for doubtful accounts at the end of the year given a set of transactions. To calculate this, we consider the beginning balance, add or subtract any revisions to the estimate, write off bad debts, and any recoveries from previously written-off accounts. The beginning allowance was $15,000; bad debts written off during the year totalled $10,800, and recoveries amounted to $3,150. However, Tamara Corporation's question does not provide information on the revisions to their estimate for the current year. Therefore, we cannot compute the exact ending balance of the allowance for doubtful accounts. Nonetheless, typically, companies estimate their end-of-year allowance based on a percentage of their ending accounts receivable or through an aging schedule. Without this estimation or additional information, we cannot provide the exact answer from the choices given.