Stellar Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Stellar's Accounts Receivable account was $595,800and Allowance for Doubtful Accounts had a credit balance of $40,550. 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		$316,300			0.96
Between 16 and 30 days		117,200			0.90
Between 31 and 45 days		81,400			0.85
Between 46 and 60 days		44,800			0.80
Between 61 and 75 days		20,300			0.58
Over 75 days (to be written off )		15,800			0.00

(a)

What is the appropriate balance for Allowance for Doubtful Accounts at year-end?

Balance for Allowance for Doubtful Accounts

$

(b)

Show how accounts receivable would be presented on the balance sheet.

STELLAR CORPORATION Balance Sheet (Partial)
Net Accounts Receivable Accounts Payable Notes Receivable Interest Revenue Allowance for Doubtful Accounts Accounts Receivable Notes Payable			$
Add Less: Allowance for Doubtful Accounts Notes Receivable Accounts Receivable Accounts Payable Net Accounts Receivable Notes Payable Interest Revenue
Net Accounts Receivable Notes Payable Interest Revenue Notes Receivable Accounts Receivable Allowance for Doubtful Accounts Accounts Payable			$

(c)

What is the dollar effect of the year-end bad debt adjustment on the before-tax income?

Dollar effect of the year-end bad debt adjustment

$ increase decrease

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