Chatter Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Chatter's Accounts Receivable account was $389,000 and the Allowance for Doubtful Accounts had a debit balance of $5,000. 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 |
$293,000 |
.97 |
| Between 16 and 30 days |
$102,000 |
.89 |
| Between 31 and 45 days |
$ 70,000 |
.83 |
| Between 46 and 60 days |
$ 55,000 |
.76 |
| Between 61 and 75 days |
$ 28,000 |
.60 |
| Over 75 days |
$ 8,000 |
.30 |
- What is the appropriate balance for the Allowance for Doubtful Accounts at year-end?
- Show how accounts receivable would be presented on the balance sheet.
- What is the dollar effect of the year-end bad debt adjustment on the before-tax income?