Based on Problem 7-3

Situation #1:

Ivanhoe Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Ivanhoe's Accounts Receivable account was $597,800 and Allowance for Doubtful Accounts had a credit balance of $40,970. 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		$318,900			0.97
Between 16 and 30 days		114,700			0.90
Between 31 and 45 days		86,600			0.86
Between 46 and 60 days		40,800			0.78
Between 61 and 75 days		20,400			0.58
Over 75 days (to be written off)		16,400			0.00

Assume that accounts with a zero percent chance of collection are intended to be written off.

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?