Splish Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Splish's Accounts Receivable account was $592,700 and Allowance for Doubtful Accounts had a credit balance of $40,680. 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 $314,400 0.96 Between 16 and 30 days 116,600 0.90 Between 31 and 45 days 85,600 0.86 Between 46 and 60 days 41,900 0.79 Between 61 and 75 days 18,600 0.53 Over 75 days (to be written off ) 15,600 0.00 What is the appropriate balance for Allowance for Doubtful Accounts at year-end? Balance for Allowance for Doubtful Accounts $ Show how accounts receivable would be presented on the balance sheet. SPLISH CORPORATION Balance Sheet (Partial) $ : $ 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 $

Solution 1: Computation of Allowance for Uncollectible Accounts Days outstanding Accounts Receivables Probability of non collection Required balance in allowance account Less than 16 days $314,400.00 0.040 $12,576.00 Between 16 and 30 days $116,600.00 0.100 $11,660.00 Between 31 and 45 days $85,600.00 0.140 $11,984.00 Between 46 and 60 days $41,900.00 0.210 $8,799.00 Between 61 and 75 days $18,600.00 0.470 $8,742.00 Over 75 days $15,600.00 1.000 $15,600.00 Total $592,700.00 $69,361.00 Solution 2: Balance sheet (Partial) Particulars Amount Accounts receivables, Gross $592,700.00 Less: Allowance for doubtful accounts $69,361.00 Accounts receivables, net $523,339.00 Solution 3: Dollar effect of the year-end bad debt adjustment on the before-tax income = $69,361 - $40,680 = $28,681.

Splish Corporation operates in an industry that has a…

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Solution 1:

Computation of Allowance for Uncollectible Accounts
Days outstanding	Accounts Receivables	Probability of non collection	Required balance in allowance account
Less than 16 days	$314,400.00	0.040	$12,576.00
Between 16 and 30 days	$116,600.00	0.100	$11,660.00
Between 31 and 45 days	$85,600.00	0.140	$11,984.00
Between 46 and 60 days	$41,900.00	0.210	$8,799.00
Between 61 and 75 days	$18,600.00	0.470	$8,742.00
Over 75 days	$15,600.00	1.000	$15,600.00

Total	$592,700.00		$69,361.00

Solution 2:

Balance sheet (Partial)
Particulars		Amount
Accounts receivables, Gross	$592,700.00
Less: Allowance for doubtful accounts	$69,361.00
Accounts receivables, net		$523,339.00

Solution 3:

Dollar effect of the year-end bad debt adjustment on the before-tax income = $69,361 - $40,680 = $28,681

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