Option #1: Bad Debts Paisley Corporation operates in an industry that has a high
ID: 2330755 • Letter: O
Question
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.
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
Explanation / Answer
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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