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Revenue and Monetary Assets

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Huron Corp. operates in an industry that has a high rate of bad debts. On Dec.31, before any year end adjustments, the balance in Huron's Accounts Receivable acct. was $75,000 and the Allowance for Doubtful Acct. had a balance of $37,500. The year-end balance reported in the statement of financial position for the Allowance for Doubtful Acct. will be based on the aging schedule shown below.

DAYS ACCT. OUTSTANDING AMOUNT PROBABILITY OF COLLECTION
less than 16 $450,000 .99
16 to30 150,000 .94
31 to 45 75,000 .80
46 to 60 45,000 .65
61 to 75 15,000 .50
Over 75 15,000 .00

A. What is the appropriate balance for the Allowance for Doubtful Accounts on Dec. 31?
B. Show how accounts receivable would be presented on the balance sheet prepared on
Dec. 31.
C. What is the dollar effect of the year-end bad debt adjustment on the before tax income for the year?

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Solution Summary

This solution calculates an appropriate balance and dollar effect given an aging schedule.

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A. What is the appropriate balance for the Allowance for Doubtful Accounts on Dec. 31?

DAYS ACCT. AMOUNT PROBABILITY Estimated
OUTSTANDING OF COLLECTION Un-collectible
less than 16 $450,000 .99 450000*(1-0.99)=4500
16 to30 150,000 .94 9000
31 to 45 75,000 .80 15000
46 to 60 45,000 ...

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