Question
P7-3 (Bad-Debt ReportingAging) Manilow Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Manilows
P7-3 (Bad-Debt ReportingAging) Manilow Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Manilows 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?
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