A Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance...

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A Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Chatter’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 OutstandingAmountProbability 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
  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?
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