On March 31, year 2, Vale Co. had an unadjusted credit balance of $1,000 in its allowance for uncollectible accounts. An analysis of Vale’s trade accounts receivable at that date revealed the following:

 On March 31, year 2, Vale Co. had an unadjusted credit balance of $1,000 in its allowance for uncollectible accounts. An analysis of Vale’s trade accounts receivable at that date revealed the following:

Age    Amount    Estimated uncollectible
0—30 days    $60,000    5%           
31—60 days    4,000    10%           
Over 60 days    2,000    $1,400            
What amount should Vale report as allowance for uncollectible accounts in its March 31, year 2 balance sheet?

$4,800 Correct
$4,000
$3,800
$3,000
 You Answered Correctly!
This answer is correct. When an aging schedule is used to estimate uncollectibles, the total uncollectibles computed is used for the ending balance in the allowance account. As computed below, the 3/31/Y2 allowance for uncollectible accounts should be $4,800.

0--30 days    $60,000    ×    5%    =    $3,000
31--60 days    $ 4,000    ×    10%    =    400
Over 60 days                    1,400
$4,800
The unadjusted balance in the allowance account ($1,000) does not affect the computation of the ending allowance balance; it is used to determine the bad debt expense ($4,800 − $1,000 = $3,800).