Reference no: EM139650
Explain way of increasing allowance for doubtful accounts without the adjustment increasing expenses.
The following is an excerpt from a conversation between Joy Pauly, the president and owner of Mullion Wholesale Co., and Trevor Conkle, Mullion controller. The conversation took place on January 3, 2008, shortly after Trevor began preparing the financial statements for the year ending December 31, 2007.
Trevor: Joy, I've completed my anaoysis fo the collectivility of our accounts receivable. My staff and I estimate that the allowance for doubtful accounts should be somewhere between $60,000 and $90,000. Right now, the balance of the allowance account is $18,000.
Joy: Oh, no! We are already below the estimated earnings projection I gave the bank last year. We used that as a basis for obtaining a $300,000 loan. They're going to be upset! Is there any way we can increase the allowance without the adjustment increasing expenses?
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