(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 Accounts Receivable account was $555,000 and Allowance for Doubtful Accounts had a credit balance of $40,000. 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 $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 .00 Instructions(a) What is the appropriate balance for Allowance for Doubtful Accounts at year-end?(b) Show how accounts receivable 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?
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
(Bad-Debt Reporting—Aging) Manilow Corporation operates in an industry that has a high rate of
| 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 | .00 |
Instructions
(a) What is the appropriate balance for Allowance for Doubtful Accounts at year-end?
(b) Show how accounts receivable 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?
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