Math Problem Statement

On December 31, Jarden Company's Allowance for Doubtful Accounts has an unadjusted credit balance of $14,500. Jarden prepares a schedule of its December 31 accounts receivable by age.

Accounts ReceivableAge of Accounts ReceivableExpected Percent Uncollectible

$ 830,000

Not yet due

1.25%

254,000

1 to 30 days past due

2.00

86,000

31 to 60 days past due

6.50

38,000

61 to 90 days past due

32.75

12,000

Over 90 days past due

68.00

Required:

1. Compute the required balance of the Allowance for Doubtful Accounts at December 31 using an aging of accounts receivable.

Solution

To compute the required balance of the Allowance for Doubtful Accounts using the aging of accounts receivable method, follow these steps:

Step 1: Organize the data

The total required balance is computed as the sum of the uncollectible amounts for each age category:

Uncollectible Amount=Accounts Receivable×Expected Percent Uncollectible\text{Uncollectible Amount} = \text{Accounts Receivable} \times \text{Expected Percent Uncollectible}

Age of Accounts ReceivableAccounts ReceivableExpected % UncollectibleUncollectible Amount
Not yet due830,000830,0001.25%1.25\%830,000×0.0125=10,375830,000 \times 0.0125 = 10,375
1 to 30 days past due254,000254,0002.00%2.00\%254,000×0.02=5,080254,000 \times 0.02 = 5,080
31 to 60 days past due86,00086,0006.50%6.50\%86,000×0.065=5,59086,000 \times 0.065 = 5,590
61 to 90 days past due38,00038,00032.75%32.75\%38,000×0.3275=12,44538,000 \times 0.3275 = 12,445
Over 90 days past due12,00012,00068.00%68.00\%12,000×0.68=8,16012,000 \times 0.68 = 8,160

Step 2: Add up the uncollectible amounts

Total Required Allowance=10,375+5,080+5,590+12,445+8,160=41,650\text{Total Required Allowance} = 10,375 + 5,080 + 5,590 + 12,445 + 8,160 = 41,650

Step 3: Interpret the result

The required balance for the Allowance for Doubtful Accounts at December 31 is $41,650.

Let me know if you want help with related calculations or explanations! 😊

Follow-up Questions:

  1. How would Jarden adjust the Allowance for Doubtful Accounts if the current balance differs from the required balance?
  2. What journal entry would be needed to adjust the Allowance for Doubtful Accounts to the computed amount?
  3. How does the aging method compare to the percentage of sales method in estimating doubtful accounts?
  4. Can you explain the impact of adjusting the Allowance for Doubtful Accounts on the financial statements?
  5. What strategies might Jarden use to reduce the uncollectible amounts in older categories?

Tip: Always check the current balance of the allowance account to calculate the necessary adjustment!

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Math Problem Analysis

Mathematical Concepts

Accounting
Aging of Accounts Receivable
Percentage Calculations

Formulas

Uncollectible Amount = Accounts Receivable × Expected Percent Uncollectible
Total Required Allowance = Sum of Uncollectible Amounts

Theorems

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Suitable Grade Level

College/Professional Accounting