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 31,2018.This analysis disclosed the following information: What is the appropriate balance for Oceanside's Allowance for Doubtful Accounts at December 31,2018?
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 31,2018.This analysis disclosed the following information:  What is the appropriate balance for Oceanside's Allowance for Doubtful Accounts at December 31,2018?
A)$95,000. 
B)$960. 
C)$3,360. 
D)$2,160.

Quizplus · Accepted Answer

To calculate the appropriate balance for Oceanside's Allowance for Doubtful Accounts at December 31, 2018, we need to use the aging method.

Step 1: Determine the percentage of uncollectible accounts for each age category. 
- 0-30 days: 1% uncollectible 
- 31-60 days: 3% uncollectible 
- 61-90 days: 6% uncollectible 
- Over 90 days: 10% uncollectible

Step 2: Apply the percentage to the total amount of accounts receivable in each age category. 
- 0-30 days: $400,000 x 1% = $4,000 
- 31-60 days: $200,000 x 3% = $6,000 
- 61-90 days: $150,000 x 6% = $9,000 
- Over 90 days: $100,000 x 10% = $10,000

Step 3: Total the estimated uncollectible amounts from step 2 to get the total estimated allowance for doubtful accounts. 
Total = $4,000 + $6,000 + $9,000 + $10,000 = $29,000

Step 4: Compare the total estimated allowance from step 3 to the current balance in the Allowance for Doubtful Accounts. 
- Current balance = $1,200 (credit)
- Estimated allowance = $29,000

Step 5: Make an adjusting entry for the difference between the current balance and the estimated allowance. 
Adjusting entry: Debit Allowance for Doubtful Accounts for $27,800 ([$29,000 - $1,200] credit balance)

Therefore, the appropriate balance for Oceanside's Allowance for Doubtful Accounts at December 31, 2018, is $2,160 (choice D).

Oceanside Company Uses the Balance Sheet Approach in Estimating Uncollectible