Bad Debts (50 points)

Chatter Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Chatters 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

1. What is the appropriate balance for the Allowance for Doubtful Accounts at year-end?
2. Show how accounts receivable would be presented on the balance sheet.
3. What is the dollar effect of the year-end bad debt adjustment on the before-tax income?