(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 AR 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.
|
Days Account Outstanding |
Amount |
Probability of Collection |
|
Less than 16 days |
300,000 |
98% |
|
Between 16 and 30 days |
100,000 |
90% |
|
Between 31 and 45 days |
80,000 |
85% |
|
Between 46 and 60 days |
40,000 |
80% |
|
Between 61 and 75 days |
20,000 |
55% |
|
Over 75 days 15,000 |
0% |
Instructions:
a) What is the appropriate balance for the Allowance for Doubtful Accounts at year-end?
b) Show how AR 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?