The Allowance for Doubtful Accounts is estimated using the aging of receivables method. The calculation involves multiplying each age category's receivable balance by its percent uncollectible and summing these products to find the total estimated balance, which is $17,820 in this case.
The question is addressing the calculation of the estimated balance of the Allowance for Doubtful Accounts using the aging of receivables method. This calculation helps a company estimate the amount of accounts receivable that may not be collectible in the future.
To calculate the estimated balance, we will multiply the ending balance in each age category of accounts receivable by the corresponding percent uncollectible, then sum these amounts. The calculation is as follows:
Current: $397,000 x 2% = $7,9401 to 30 days: $91,000 x 3% = $2,73031 to 60 days: $37,000 x 6% = $2,22061 to 90 days: $19,000 x 8% = $1,520Over 90 days: $31,000 x 11% = $3,410
Adding these amounts together gives the total estimated balance for the Allowance for Doubtful Accounts:
$7,940 + $2,730 + $2,220 + $1,520 + $3,410 = $17,820