Assignment Choice #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 Chatters accounts receivable account is $556,000, 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

What is the appropriate balance for the allowance for doubtful accounts at year end?

Show how accounts receivable would be presented on the balance sheet.

What is the dollar effect of the year-end bad debt adjustment on the before-tax income?