Huron Corporation operates in an industry that has a high rate of bad debts. On December 31, before any year-end adjustments, the balance in Huron’s Accounts Receivable account was $750,000 and the Allowances for Doubtful accounts had a balance of $37,500. The year-end balance reported in the statement of financial position 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 $450,000 .99
16 to 30 150,000 .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 December 31?
b.) Show how accounts receivable would be presented on the balance sheet prepared on December 31.
c.) What is the dollar effect of the year-end bad debt adjustment on the before-tax income for the year?