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.

  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?

Your well-written paper must be 2 to 3 pages in length, in addition to the title and reference pages, and be formatted according to the CSU-Global Guide to Writing and APA Requirements. Cite at least three peer-reviewed sources, in addition to the required readings for this module.

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