An analysis and aging of the accounts receivable of Downs Company at December 31 revealed the following data: The cash realizable value of the accounts receivable at December 31, after adjustment, is:

Question

An analysis and aging of the accounts receivable of Downs Company at December 31 revealed the following data:  The cash realizable value of the accounts receivable at December 31, after adjustment, is:

Quizplus · Accepted Answer

The aging method shows how much of the accounts receivable is expected to be uncollectible. Using the aging method, we can calculate the allowance for doubtful accounts by multiplying each age category by its estimated percentage of uncollectible accounts and then summing the amounts.

Age | Amount | Estimated Percentage of Uncollectible Accounts | Estimated Uncollectible Amount 
--- | --- | --- | --- 
0-30 days | ₤400,000 | 1% | ₤4,000 
31-60 days | ₤200,000 | 3% | ₤6,000 
61-90 days | ₤100,000 | 6% | ₤6,000 
Over 90 days | ₤50,000 | 20% | ₤10,000 
Total | ₤750,000 |  | ₤26,000

The allowance for doubtful accounts is therefore ₤26,000. Subtracting this from the total accounts receivable of ₤867,000 gives the cash realizable value of ₤841,000. Therefore, the correct answer is C.

An Analysis and Aging of the Accounts Receivable of Downs