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Q1) Piece Corporation operates in industry which has high rate of bad debts. Before any year-end adjustments, balance in Piece's Accounts Receivable account was $555,000 and Allowance for Doubtful Accounts had credit balance of$35,000. Year-end balance reported in balance sheet for Allowance for Doubtful Accounts will be based on aging schedule given 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
.75
Between 61 and 75 days
20,000
.40
Over 75 days
15,000
.00

problems:

a) What is the suitable balance for Allowance for Doubtful Accounts at year-end?

b) Illustrate how accounts receivable would be presented on balance sheet.

c) Determine the dollar effect of the year-end bad debt adjustment on before-tax income?

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M920005

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