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 35% uncollectible rate.

If YOC has $111,000 of young accounts and $390,000 of old accounts, how much should be reported in the Allowance for Doubtful Accounts?

Answer 1

YOC should report $139,830 in the Allowance for Doubtful Accounts, calculated by applying a 3% uncollectible rate to young accounts and a 35% rate to old accounts.

Step-by-step explanation:

Young and Old Corporation (YOC) categorizes its accounts by age to estimate uncollectible accounts. The calculation for the Allowance for Doubtful Accounts includes a 3% uncollectible rate for accounts that are less than 60 days old (young accounts) and a 35% uncollectible rate for accounts older than 60 days (old accounts). To compute the estimated total for the Allowance for Doubtful Accounts, we apply these percentages correspondingly:

• Young accounts uncollectible: $111,000 x 3% = $3,330
• Old accounts uncollectible: $390,000 x 35% = $136,500

The combined total that should be reported in the Allowance for Doubtful Accounts is the sum of these two amounts, which is $3,330 (young) + $136,500 (old) = $139,830.