Reference no: EM132619970
Question - Larkspur Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Larkspur's Accounts Receivable account was $584,900 and Allowance for Doubtful Accounts had a credit balance of $42,500. 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 $312,200 0.98
Between 16 and 30 days 111,900 0.90
Between 31 and 45 days 86,000 0.86
Between 46 and 60 days 40,900 0.80
Between 61 and 75 days 19,100 0.55
Over 75 days (to be written off ) 14,800 0.00
Required - What is the dollar effect of the year-end bad debt adjustment on the before-tax income?