Chatter Corporation operates in an industry that has a high rate of bad debts.

| June 4, 2016

Question
Chatter 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 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

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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