Question

Crimson Inc. recorded credit sales of $797,000, of which $540,000 is not yet due, $170,000 is past due for up to 180 days, and $87,000 is past due for more than 180 days. Under the aging of receivables method, Crimson Inc. expects it will not collect 2% of the amount not yet due, 16% of the amount past due for up to 180 days, and 27% of the amount past due for more than 180 days. The allowance account had a debit balance of $3,800 before adjustment. After adjusting for bad debt expense, what is the ending balance of the allowance account

Answer 1

$65,290

Explanation:

The computation of the ending balance of the allowance account is shown below:-

Bad Debts for accounts receivable not yet due is

= $540,000 × 0.02

= $10,800

Bad Debts for accounts receivable due for up-to 180 days:

= $170,000 × 0.16

= $27,200

Bad Debts for accounts receivable due for more than 180 days:

= $87,000 × 0.27

= $23,490

Ending balance of Allowance account:

= $3,800 + $10,800 + $27,200 + $23,490

= $65,290