The chief accountant for Dickinson Corporation provides you with the
The chief accountant for Dickinson Corporation provides you with the following list of accounts receivable that were written off in the current year:
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.
Instructions
(a) Do you agree with Dickinson Corporation’s policy on recognizing bad debt expense? Why?
(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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