Sheffield Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Sheffield's Accounts Receivable account was $599,400 and Allowance for Doubtful Accounts had a credit balance of $44,130. 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 Less than 16 days Between 16 and 30 days Between 31 and 45 days Between 46 and 60 days Between 61 and 75 days Over 75 days (to be written off) (a) Amount $317,500 117,700 88,200 42,400 18,600 15,000 Probability of Collection 0.96 0.90 0.85 0.78 0.60 0.00 What is the appropriate balance for Allowance for Doubtful Accounts at year-end?
Sheffield Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Sheffield's Accounts Receivable account was $599,400 and Allowance for Doubtful Accounts had a credit balance of $44,130. 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 Less than 16 days Between 16 and 30 days Between 31 and 45 days Between 46 and 60 days Between 61 and 75 days Over 75 days (to be written off) (a) Amount $317,500 117,700 88,200 42,400 18,600 15,000 Probability of Collection 0.96 0.90 0.85 0.78 0.60 0.00 What is the appropriate balance for Allowance for Doubtful Accounts at year-end?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
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H1.
Transcribed Image Text:Sheffield Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in
Sheffield's Accounts Receivable account was $599,400 and Allowance for Doubtful Accounts had a credit balance of $44,130. 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
Less than 16 days
Between 16 and 30 days
Between 31 and 45 days
Between 46 and 60 days
Between 61 and 75 days
Over 75 days (to be written off)
(a)
Amount
$317,500
117,700
88,200
42,400
18,600
15,000
Probability of
Collection
0.96
Balance for Allowance for Doubtful Accounts $
0.90
0.85
0.78
0.60
0.00
What is the appropriate balance for Allowance for Doubtful Accounts at year-end?
Transcribed Image Text:(b)
Show how accounts receivable would be presented on the balance sheet.
(c).
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SHEFFIELD CORPORATION
Balance Sheet (Partial)
GA
$
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 $
$
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