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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
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 $606,500 and the Allowance for Doubtful Accounts had a credit balance of $44,500. 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 | Probability of Collection | ||
Less than 16 days | $319,100 | 0.97 | ||
Between 16 and 30 days | 119,000 | 0.91 | ||
Between 31 and 45 days | 82,800 | 0.86 | ||
Between 46 and 60 days | 42,200 | 0.82 | ||
Between 61 and 75 days | 27,500 | 0.56 | ||
Over 75 days | 15,900 | 00 |
1. What is the appropriate balance for Allowance for Doubtful Accounts at year-end?
Answer: $51571
2. Show how accounts receivable would be presented on the balance sheet.
Answer:
Accounts Receivable:590,600
Less:
Allowance for Doubtful Accounts: 51571
Net Accounts Receivable: 539,029
3. What is the dollar effect of the year-end bad debt adjustment on the before-tax income?
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