Chatter Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in ChatterÂ’s Accounts Receivable account was $389,000 and the Allowance for Doubtful Accounts had a debit balance of $5,000. 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$293,000.97
Between 16 and 30 days$102,000.89
Between 31 and 45 days$ 70,000.83
Between 46 and 60 days$ 55,000.76
Between 61 and 75 days$ 28,000.60
Over 75 days$ 8,000.30
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?