What is the appropriate balance for the allowance for


Manilow Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Manilow's AR account was $555,000 and the Allowance for Doubtful Accounts had a credit balance of $40,000. 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

80%

Between 61 and 75 days

20,000

55%

Over 75 days 15,000


0%

Instructions:

a) What is the appropriate balance for the Allowance for Doubtful Accounts at year-end?

b) Show how AR 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?

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