Solution-By what amount would net income differ

By what amount would net income differ

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Question - The chief accountant for Dickinson Corporation provides you with the following list of accounts receivable that were written off in the current year:

Date	Customer	Amount
Mar. 31	Eli Masters Ltd.	$7,700
June 30	Crane Associates	6,800
Sept. 30	Annie Lowell's Dress Shop	12,000
Dec. 31	Vahik Uzerian	6,830

Dickinson Corporation follows the policy of debiting Bad Debt Expense as accounts are written off. The chief accountant maintains that this procedure is appropriate for financial statement purposes.

All of Dickinson Corporation's sales are on a 30-day credit basis, and the accounts written off all related to current year sales. Sales for the year total $3.2 million, and your research suggests that bad debt losses approximate 2% of sales.

Required -

a. Do you agree with Dickinson Corporation's policy on recognizing bad debt expense? Why or why not?

b. By what amount would net income differ if bad debt expense was calculated using the allowance method and percentage-of-sales approach?

c. Under what conditions is using the direct write off method justified?

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By what amount would net income differ

Reference no: EM133029354

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