Question

Kingbird Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Kingbird's Accounts Receivable account was $593,900 and Allowance for Doubtful Accounts had a credit balance of $40,480. 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		$314,700			0.98
Between 16 and 30 days		118,900			0.90
Between 31 and 45 days		82,800			0.86
Between 46 and 60 days		43,900			0.79
Between 61 and 75 days		18,200			0.52
Over 75 days (to be written off )		15,400			0.00

Incorrect answer iconYour answer is incorrect.

What is the appropriate balance for Allowance for Doubtful Accounts at year-end?

Balance for Allowance for Doubtful Accounts

$

eTextbook and Media

  

  

Partially correct answer iconYour answer is partially correct.

Show how accounts receivable would be presented on the balance sheet.

KINGBIRD CORPORATION Balance Sheet (Partial)
Accounts ReceivableAllowance for Doubtful AccountsNet Accounts Receivable			$
AddLess:                                                                       Allowance for Doubtful AccountsAccounts ReceivableNet Accounts Receivable
Accounts ReceivableAllowance for Doubtful AccountsNet Accounts Receivable			$

eTextbook and Media

  

  

Correct answer iconYour answer is correct.

What is the dollar effect of the year-end bad debt adjustment on the before-tax income?

Dollar effect of the year-end bad debt adjustment

$                                                                        decreaseincrease

show work and explain

Answer 1

Solution 1:

Computation of Allowance for Uncollectible Accounts
Ageing	Accounts Receivables	% Uncollectible	Required Allowance
Less than 16 days	$314,700.00	2%	$6,294.00
Between 16 and 30 days	$118,900.00	10%	$11,890.00
Between 31 and 45 days	$82,800.00	14%	$11,592.00
Between 46 and 60 days	$43,900.00	21%	$9,219.00
Between 61 and 75 days	$18,200.00	48%	$8,736.00
Total	$578,500.00		$47,731.00

Solution 2:

Balance Sheet
Current Assets:
Accounts receivables, Gross	$578,500.00
Allowance for doubtful accounts	$47,731.00
Accounts receivables, Net		$530,769.00

Solution 3:

dollar effect of the year-end bad debt adjustment on the before-tax income = $47,731 + $15,400 - $40,480 = $22,651 decrease