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Problem 7-3 (Part Level Submission) Pearl Corporation operates in an industry that has a high rate...

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Accounting

Problem 7-3 (Part Level Submission) Pearl Corporation operatesin an industry that has a high rate of bad debts. Before anyyear-end adjustments, the balance in Pearl's Accounts Receivableaccount was $595,600 and Allowance for Doubtful Accounts had acredit balance of $40,350. The year-end balance reported in thebalance sheet for Allowance for Doubtful Accounts will be based onthe aging schedule shown below. Days Account Outstanding AmountProbability of Collection Less than 16 days $314,500 0.97 Between16 and 30 days 119,900 0.90 Between 31 and 45 days 84,800 0.85Between 46 and 60 days 43,000 0.82 Between 61 and 75 days 19,8000.53 Over 75 days 13,600 0.00 Assume that accounts with a zeropercent chance of collection are intended to be written off.Collapse question part (a) What is the appropriate balance forAllowance for Doubtful Accounts at year-end? Balance for Allowancefor Doubtful Accounts

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4.1 Ratings (664 Votes)

ALLOWANCE FRO DOUBTFUL ACCOUNTS
DATE PARTICULAR AMOUNT DATE PARTICULAR AMOUNT
START OF YEAR TO BAD DEBTS              (WRITE OFF FOR 0% PROBABILITY) $        13,600 START OF YEAR BY OPENING BALANCE $        40,350
END OF YEAR TO CLOSING BALANCE $        77,941 END OF YEAR BY NEW ALLOWANCE FOR DOUBTFUL (AS CALCULATED BELOW) $        51,191
$        91,541 $        91,541
DAYS
FROM TO AMOUNT OF RECEIVABLE PROBABILITY OF COLLECTION PROBABILITY OF NOT COLLECTION NEW ALLOWANCE REQUIRED
LESS THAN 16 314500 0.97 0.03 9435
16 30 119900 0.9 0.1 11990
31 45 84800 0.85 0.15 12720
46 60 43000 0.82 0.18 7740
61 75 19800 0.53 0.47 9306
NEW ALLOWANCE REQUIRED 51191
AMOUNT OF RECEIVABLE OVER 75 DAYS OF 13600 WITH COLLECTION PROBABILITY OF 0% IS COMPLETELY WRITTEN OF TO BAD DEBTS

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