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 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. Instructions (a) What is the appropriate balance for the 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? (CMA adapted) P7-4 (Bad-Debt Reporting) From inception of operations to December 31, 2010, Fortner Corporation provided for uncollectible accounts receivable under the allowance method: provisions were made monthly at 2% of credit sales; bad debts written off were charged to the allowance account; necoveries of bad debts previously written off were credited to the allowance account; and no year-end adjustments to the allowance account were made. Fortner's usual credit terms are net 30 days. The balance in the Allowance for Doubtful Accounts was $130,000 at January 1, 2010. During 2010 credit sales totaled $9,000,000, interim provisions for doubtful accounts were made at 2% of credit sales, $90,000 of bad debts were written off, and recoveries of accounts previously written off amounted to 515,000 . Forther installed a computer system in November 2010 , and an aging of accounts receivable was prepared for the first time as of December 31, 2010. A summary of the aging is as follows. Based on the review of collectibility of the account balances in the "prior to 1/1/10" aging category, additional receivables totaling $60,000 were written off as of December 31,2010 . The 80% uncollectible estimate applies to the remaining $90,000 in the category. Effective with the year ended December 31, 2010, Fortner adopted a different method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable. Instructions (a) Prepare a schedule analyzing the changes in the Allowance for Doubtful Accounts for the year ended December 31, 2010, Show supporting computations in good form. (Hint: In computing the 12/31/10 allowance, subtract the $60,000 write-off). (b) Prepare the journal entry for the year-end adjustment to the Allowance for Doubtful Accounts balance as of December 31, 2010