Question
In: Accounting
Option #1: Bad Debts Paisley Corporation operates in an industry that has a high rate of...
Option #1: Bad Debts
Paisley Corporation operates in an industry that has a high rate of bad debts. 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 Not Collecting |
|---|---|---|
|
Less than 16 days |
$351,600 |
.03 |
|
Between 16 and 30 days |
122,400 |
.11 |
|
Between 31 and 45 days |
84,000 |
.17 |
|
Between 46 and 60 days |
66,000 |
.24 |
|
Between 61 and 75 days |
33,600 |
.40 |
|
Over 75 days |
$ 9,600 |
.70 |
Before year-end adjustments, Chatter’s Allowance for Doubtful Accounts had a debit balance of $6,000.
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 to 3 pages in length. Cite at least three peer-reviewed sources, in addition to the required readings for this module. Please provide a detailed answer. Thanks in advance.
Solutions
Expert Solution
| calculation of allowance of doubtful debt at year end | |||||
| days a/c outstanding | amount (a) | probability of not collecting (b) | allowance (a)*(b) | ||
| less than 16 days | $ 3,51,600.00 | 0.03 | $ 10,548.00 | ||
| between 16 and 30 days | $ 1,22,400.00 | 0.11 | $ 13,464.00 | ||
| between 31 and 45 days | $ 84,000.00 | 0.17 | $ 14,280.00 | ||
| between 46 and 60 days | $ 66,000.00 | 0.24 | $ 15,840.00 | ||
| between 61 and 75 days | $ 33,600.00 | 0.4 | $ 13,440.00 | ||
| over 75days | $ 9,600.00 | 0.7 | $ 6,720.00 | ||
| total | $ 6,67,200.00 | $ 74,292.00 | |||
| THEREFORE THE ALLOWANCE FOR DOUBTFUL DEBT AT THE YEAR END = $74292 | |||||
| B) Current assets | |||||
| accounts receviable | $ 6,67,200.00 | ||||
| less: allowance for doubtful | $ -74,292.00 | ||||
| accounts receviable (net) | $ 5,92,908.00 | ||||
| C) dollar factor of the year end bad debt adujustment = 74292+6000(doubt full debt debit balance) | |||||
| 80292 | |||||
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