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P7.3 (Lo 3)

Manilow Corporation uses an aging schedule to estimate bad debts based on the probability of collection for accounts receivable in different aging categories. The estimated bad debt amount is used to adjust the allowance for doubtful accounts balance before closing the accounting period. The adjusted allowance balance is then reported on the statement of financial position. The year-end bad debt adjustment also affects the company's before-tax income.

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115 views3 pages

P7.3 (Lo 3)

Manilow Corporation uses an aging schedule to estimate bad debts based on the probability of collection for accounts receivable in different aging categories. The estimated bad debt amount is used to adjust the allowance for doubtful accounts balance before closing the accounting period. The adjusted allowance balance is then reported on the statement of financial position. The year-end bad debt adjustment also affects the company's before-tax income.

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Riyan
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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P7.

3 (LO 3) (Bad-Debt Reporting—Aging) Manilow Corporation operates in an

industry that has a high rate of bad debts. Before any year-end adjustments, the

balance in Manilow’s Accounts Receivable was $555,000 and Allowance for Doubtful

Accounts had a credit balance of $40,000. The year-end balance reported in the

statement of financial position for Allowance for Doubtful Accounts will be based on

the following aging schedule.

Days Account Outstanding Amount Probability of Collection

Less than 16 days $300,000 .98

16–30 days 100,000 .90

31–45 days 80,000 .85

46–60 days 40,000 .80

61–75 days 20,000 .55

Over 75 days 15,000 .00


Instructions

a. What is the appropriate balance for Allowance for Doubtful Accounts at year-end?

b. Show how accounts receivable would be presented on the statement of financial position.

c. What is the dollar effect of the year-end bad debt adjustment on the before-taxincome?

*P7.13 (LO 6) (Bank Reconciliation and Adjusting Entries) The Cash account

of Aguilar Co. showed a ledger balance of $3,969.85 on June 30, 2022. The bank

statement as of that date showed a balance of $4,150. Upon comparing the statement

with the cash records, the following facts were determined.

1. There were bank service charges for June of $25.

2. A bank memo stated that Bao Dai’s note for $1,200 and interest of $36 had been

collected on June 29, and the bank had made a charge of $5.50 on the collection.

(No entry had been made on Aguilar’s books when Bao Dai’s note was sent to the

bank for collection.)


3. Receipts for June 30 for $3,390 were not deposited until July 2.

4. Checks outstanding on June 30 totaled $2,136.05.

5. The bank had reduced Aguilar Co.’s account for a customer’s uncollectible check

amounting to $253.20 on June 29.

6. A customer’s check for $90 (payment on account) had been entered as $60 in the

cash receipts journal by Aguilar on June 15.

7. Check no. 742 in the amount of $491 had been entered in the cash journal as

$419, and check no. 747 in the amount of $58.20 had been entered as $582. Both

checks had been issued to pay for purchases of equipment.

Instructions

a. Prepare a bank reconciliation dated June 30, 2022, proceeding to a correct cash

balance.

b. Prepare any entries necessary to make the books correct and complete.

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