Acc300 Intermediate Accounting: P7-3 Manilow Corporation operates in an industry

Acc300 Intermediate Accounting

Problem 7-3 (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?
Powered by