Chatter Corporation operates in an industry that has a high rate of bad debts. Before any year end adjustments, the balance in Chatter’s Accounts Receivable account was $389,000 and the Allowance for Doubtful Accounts had a debit balance of $5,000. 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 | $293,000 | .97 |
| Between 16 and 30 days | $102,000 | .89 |
| Between 31 and 45 days | $ 70,000 | .83 |
| Between 46 and 60 days | $ 55,000 | .76 |
| Between 61 and 75 days | $ 28,000 | .60 |
| Over 75 days | $ 8,000 | .30 |
- What is the appropriate balance for the Allowance for Doubtful Accounts at year end?
- Show how accounts receivable would be presented on the balance sheet.
- What is the dollar effect of the year end bad debt adjustment on the before tax income?