Question
SLC Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in SLCs Accounts Receivable account
SLC Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in SLCs Accounts Receivable account was $850,000 and the Allowance for Doubtful Accounts had a debit balance of $12,000. The year-end balance reported in the balance sheet for Allowance for Doubtful Accounts will be based on the aging schedule shown below.
Probability of Days Account Outstanding Amount Estimated Collection %
Less than 16 days $425,000 0.98
Between 16 and 30 days 135,000 0.92
Between 31 and 45 days 175,000 0.86
Between 46 and 60 days 50,000 0.75
Between 61 and 75 days 40,000 0.45
Over 75 days 25,000 0.00
Required (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 effect of the year-end bad debt adjustment on the before-tax income?
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