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?