Oceanside Company uses the balance sheet approach in estimating uncollectible accounts expense.Its Allowance for Doubtful Accounts has a $1,200 credit balance prior to adjusting entries.It has just completed an aging analysis of accounts receivable at December 31,2015.This analysis disclosed the following information: What is the appropriate balance for Oceanside's Allowance for Doubtful Accounts at December 31,2015?
A)$95,000.
B)$960.
C)$3,360.
D)$2,160.

Question

Oceanside Company uses the balance sheet approach in estimating uncollectible accounts expense.Its Allowance for Doubtful Accounts has a $1,200 credit balance prior to adjusting entries.It has just completed an aging analysis of accounts receivable at December 31,2015.This analysis disclosed the following information:  What is the appropriate balance for Oceanside's Allowance for Doubtful Accounts at December 31,2015?
A)$95,000. 
B)$960. 
C)$3,360. 
D)$2,160.

Quizplus · Accepted Answer

The aging analysis shows that $96,000 of Oceanside's accounts receivable are between 31-60 days past due and $21,000 are over 60 days past due. According to the company's aging schedule, 2% of the 31-60 days past due accounts and 10% of the over 60 days past due accounts will be uncollectible.

Thus, the estimated uncollectible amount is:
($96,000 x 2%) + ($21,000 x 10%) = $2,160

Subtracting the current credit balance of $1,200 from the estimated uncollectible amount of $2,160 gives the appropriate balance for Oceanside's Allowance for Doubtful Accounts at December 31, 2015:
$2,160 - $1,200 = $960

Therefore, the best choice is D.

Oceanside Company Uses the Balance Sheet Approach in Estimating Uncollectible