Chapter 8, Problem 6E

Computing Bad Debt Expense Using Aging of Accounts Receivable Method

Young and Old Corporation (YOC) uses two aging categories to estimate uncollectible accounts. Accounts less than 60 days are considered young and have a 5% uncollectible rate. Accounts more than 60 days are considered old and have a 40% uncollectible rate.

Required:

1. 1. If YOC has $100,000 of young accounts and $400,000 of old accounts, how much should be reported in the Allowance for Doubtful Accounts?
2. 2. If YOC’s Allowance for Doubtful Accounts currently has an unadjusted credit balance of $40,000, how much should be credited to the account?
3. 3. If YOC’s Allowance for Doubtful Accounts has an unadjusted debit balance of $5,000, how much should be credited to the account?
4. 4. Explain how YOC’s Allowance for Doubtful Accounts could have a debit balance.