What balance should be in allowance uncollectible account

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Reference no: EM132984672

Accounts Receivable Analysis

Kate Miller owns a dance studio in Los Angeles, California. Students can buy access to the dance classes by paying a monthly fee. Unfortunately, many of Kate's students are struggling actors and actresses who lack the ability to pay their bills in a timely manner. And, although the students were expected to pay for classes in advance, Kate began offering credit to many of her students to grow her business. This, however, put Kate in a serious liquidity problem as revealed by the growing balance in the studio's outstanding accounts receivable:

Age Classification Accounts Receivable Outstanding Balance Historical Estimate of Non-Collection
0-30 days	$35,200	4%
31-60 days	24,800	8%
61-90 days	17,600	12%
91-120 days	10,400	14%
121-150 days	7,200	20%
> 150 days	4,000	50%

Kate's accountant, Matt Thomas, tried to help her get a handle on the studio's accounts receivable problem, but to little avail. One trick he successfully used in the past to make Kate realize the seriousness of the problem was to overestimate the extent of Kate's bad debt problem; consequently, there currently exists a balance in the allowance for uncollectible accounts totaling $2,160.

Solve for an aging of Kate's remaining accounts receivable. What balance should be in the Allowance for Uncollectible Accounts account?

Hint - Remember that Kate has already written off all accounts greater than 150 days old.

Balance in Allowance for Uncollectible Accounts = $ (answer)
What is Kate's new estimate for bad debt expense? = $ (answer)

Reference no: EM132984672

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