(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?
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