Question - Marin Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Marin's Accounts Receivable account was $590,400 and Allowance for Doubtful Accounts had a credit balance of $40,320. The year-end balance reported in the balance sheet for Allowance for Doubtful Accounts will be based on the aging schedule shown below.
Days Account Outstanding Amount Probability of Collection
Less than 16 days $312,000 0.96
Between 16 and 30 days 116,300 0.90
Between 31 and 45 days 84,500 0.86
Between 46 and 60 days 40,600 0.80
Between 61 and 75 days 21,600 0.55
Over 75 days 15,400 0.00
Assume that accounts with a zero percent chance of collection are intended to be written off.
1. What is the appropriate balance for the Allowance for Doubtful Accounts at year-end?
2. Show how accounts receivable would be presented on the balance sheet.
3. What is the dollar effect of the year-end bad debt adjustment on the before-tax income?