Question

a
Days Account Outstanding	Amount	Probability of Not Collecting	Allowance
Less than 16 days	351600	0.03	10548
Between 16 and 30 days	122400	0.11	13464
Between 31 and 45 days	84000	0.17	14280
Between 46 and 60 days	66000	0.24	15840
Between 61 and 75 days	33600	0.4	13440
Over 75 days	9600	0.7	6720
Total	667200		74292
Allowance for Doubtful Accounts at year-end=$74292
b
Current assets:
Accounts Receivable	667200
Less: Allowance for Doubtful Accounts	74292
Accounts Receivable - Net	592908
c
Dollar effect of the year-end bad debt adjustment = 74292+6000 = $80292 This is the answer above. Here are the questions... 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? Your well-written paper must be 2 pages

Answer 1

Answer a.

The appropriate balance for the Allowance for Doubtful Accounts at year-end is $74292.

The same has been calculated considering the probability of non- collection of accounts recievable pending over the period of time. Likewise, for accounts recievable outstanding for over 75 days , the probability of getting them recovered is only 30% giving us the indiciation that the probability of them not getting recovered is 70%.

Answer b.

The accounts recievable would be persented as below:

Asset Side:

Current Assets

Accounts Recievable.............................................................................................. $ 667200

Less: Allowance for doubtful debts........................................................................... $ 74292

Net Accounts Recievable........................................................................................ $ 592908

Answer c.

The dollar effect of the year-end bad debt adjustment on the before-tax income depends on the amount of provision being created for bad debt. Considering the information avaliable, the expense to be charged is equal to the amount of allowance for doubtful debts i.e., $ 74292.