Concord Corporation had a 1/1/20 balance in the Allowance for Doubtful Accounts of $36500. During 2020, it wrote off $30500 of accounts and collected $8600 on accounts previously written off. The balance in Accounts Receivable was $780000 at 1/1 and $940000 at 12/31. At 12/31/20, Concord estimates that 5% of accounts receivable will prove to be uncollectible. What should Concord report as its Allowance for Doubtful Accounts at 12/31/20
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To calculate the Allowance for Doubtful Accounts at 12/31/20 for Concord Corporation, we will follow these steps:
1. Begin with the opening balance of the allowance account on 1/1/20: $36,500 And deduct the accounts that were actually written off during the year: $30,500. Then add back the recoveries, which are amounts collected on accounts that were previously written off: $8,600.
2. Calculate the estimated uncollectible amount at the end of the year based on the year-end accounts receivable balance. Concord estimates 5% of accounts receivable will be uncollectible. With accounts receivable of $940,000 at 12/31, the estimated uncollectible amount is 5% of $940,000, which is $47,000.
3. The adjusted balance in the allowance account will be the result from step 3 (the net balance after writing off accounts and recoveries) plus the new uncollectible estimate from step 2.
Let's do the calculations:
1. Starting balance on 1/1/20: $36,500 2. Less: Accounts written off during the year: -$30,500 3. Plus: Recoveries on accounts previously written off: +$8,600.
Net balance after steps: $36,500 - $30,500 + $8,600 = $14,600
2. Year-end uncollectible estimate: 5% of $940,000 accounts receivable = $47,000
Therefore, the Allowance for Doubtful Accounts at 12/31/20 will be:
Net balance after write-offs and recoveries: $14,600 Plus: New uncollectible estimate: +$47,000
Total Allowance for Doubtful Accounts at 12/31/20: $14,600 + $47,000 = $61,600.