California. Stu- sons for the difference in the average collection pellous 10I many of their bills in a dents could buy access to the dance classes by paying a monthly fee. Unfortunatel Sally's students were struggling actors and actresses who lacked the ability to pay timely manner. Although the students were expected to pay for classes in advance, S EYKS-3. Business Decision Problem Sally Smith owned a dance studio in San Francisco, Califo ally had begun offering credit to many of her students in order to grow her business. This, however, created a seri ous liquidity problem for Sally Trade Receivables Outstanding Balance Historical Estimate of Noncollection Age Classification 0-30 days 31-60 days 61-90 days 91-120 days 21-150 days > 150 days $44,000 31,000 22,000 13,000 9,000 5,000 4% 8% 12% 14% 20% 50% Sally'saccountant, Matt Thomas,had tried to help her get a handle on the problem, but to little avail. One trick he had successfully used in the past to make Sally realize the seriousness of the problem was to overestimate the extent of Sally's debts; consequently, there currently existed a balance in the Allowance for Uncollectible Accounts totaling $2,700. Chapter 8 Accounting for Receivables Required 1. The first step to help get Sally's busines s back on track is to write-off all receivables having a very low probability of collection (i.e., those accounts over 150 days). Which accounts are 2. Prepare an aging of Sally's remaining accounts receivable. What should be the balance in the 3. Sally is in need of an immediate cash infusion and Matt has advised her to sell some of her r $40,000 of "current" receivables (i.e., 0-30 days old) on a nonrecourse basis at a affected and by what amount? Allowance for Uncollectible Accounts? receivables. A local bank has offered her two alternatives: a. Facto flat fee of eleven percent of the receivables sold. b. Factor $4 0,000 of "current" receivables on a recourse basis at a flat fee of six percent of the receivables sold Which option should Sally choose? Why