Calculate the year end allowance balance.
Piece Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Piece's Accounts Receivable account was $555,000 and the Allowance for Doubtful Accounts had credit balance of$35,000. The year-end balance reported in the balance sheet for the Allowance for Doubtful Accounts will be based on the aging schedule shown below.
|
Days Account Outstanding
|
Amount
|
Probability of Collection
|
|
Less than 16 days
|
$300,000
|
.98
|
|
Between 16 and 30 days
|
100,000
|
.90
|
|
Between 31 and 45 days
|
80,000
|
.85
|
|
Between 46 and 60 days
|
40,000
|
.75
|
|
Between 61 and 75 days
|
20,000
|
.40
|
|
Over 75 days
|
15,000
|
.00
|
Instruction
a) What is the appropriate balance for the Allowance for Doubtful Accounts at year-end?
b) Show how accounts receivable would be presented on the balance sheet.
c) What is the dollar effect of the year-end bad debt adjustment on the before-tax income?