P7-3 (Bad-Debt Reporting—Aging) Manilow Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Manilow’s Accounts Receivable account was $555,000 and Allowance for Doubtful Accounts had a credit balance of $40,000. The year-end balance reported in the balance sheet for Allowance for Doubtful Accounts will be based on the aging schedule shown below.
|
Days Account Outstanding
|
Amount
|
Collection Probability
|
|
Less than 16 days
|
$300,000
|
0.98
|
|
Between 16 and 30 days
|
$100,000
|
0.90
|
|
Between 31 and 45 days
|
$80,000
|
0.85
|
|
Between 46 and 60 days
|
$40,000
|
0.80
|
|
Between 61 and 75 days
|
$20,000
|
0.55
|
Instructions:
(a) What is the appropriate balance for 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?