Chez Fred Bakery estimates the allowance for uncollectible accounts at 3% of the ending balance of accounts receivable. During 2009, Chez Fred's credit sales and collections were $125,000 and $131,000, respectively. What was the balance of accounts receivables on January 1, 2009, if $180 in accounts receivable were written off during 2009 and if the allowance account had a balance of $750 on 12/31/09?

Question

Quizplus · Accepted Answer

Credit sales for 2009 = $125,000
Collections for 2009 = $131,000
Therefore, the increase in accounts receivable during 2009 = $125,000 - $131,000 = -$6,000
This means that the balance in accounts receivable on December 31, 2009 is $6,000 less than the balance on January 1, 2009.
Let X be the balance in accounts receivable on January 1, 2009.
The amount that is estimated to be uncollectible is 3% of X.
So the balance in the allowance account on December 31, 2009 is $750, which represents 3% of the ending balance in accounts receivable on that date.
Therefore, we can set up the following equation:
0.03X = $750 - $180 - $6,000
Solving for X, we get:
X = ($750 - $180 - $6,000)/0.03 = $31,180
Therefore, the balance of accounts receivable on January 1, 2009 was $31,180. Answer: C.

Chez Fred Bakery Estimates the Allowance for Uncollectible Accounts at 3