Two accounting interns, Serene and Joel, were tasked by you, their supervisor, to propose the required amount of allowance at December 31, 20X7, for Alyssa Candy Empire (ACE), a distributor of specialty confectionery. Data provided to the two interns include an aging schedule below:

Serene evaluated ACEs historical records of customer defaults and concluded that the likelihood of a receivable becoming bad is correlated to the age of the receivable. She assigned a 1%, 5%, 10%, and 20% likelihood for each age group of receivables.

Joel took another approach and evaluated the likelihood of receivable impairment customer by customer. His research shows that Customer A is a new customer and since it is not yet overdue, there is only a 1% chance that it will not be collected. Customer B and Customer D are long-time customers, and whilst they may pay a little later than the usual credit term of 30 days, the likelihood of nor being able to collect their receivables is only 10%. Joel has read that Customer C was not able to make its loan repayments last month, Newspaper articles also point to some worry about Customer Cs ability to continue as a growing concern. Joel estimated that it is almost certain that the amount owing would be uncollectible. Customer E, located in another country, has also experienced significant decline in business due to a severe recession in the country. Joel believes that there is a 20% chance that the receivables may be impaired.

Joel and Serene performed their analysis and reported back to you with their recommendations. Whose recommendation will you accept? Why?

Age of Account Receivables 31-60 Days Not Yet Due 400 100 300 1-30 Days Over 60 Days Total 400 200 1,200 Receivables Customer A Customer B Customer C 100 200 600 100 11,060 1.00% 13,886 Total Percentage uncollectible Required allowance 1,363 5.00% 68 370 12.50% 46 1,093 20.00% 219