Only Calculations Paper not included

Option #1: Bad Debts

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 is $389,000, and the allowance for doubtful accounts has 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 here:

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?