Inferring Bad Debt Expense and Determining the Impact of Uncollectible Accounts on Income and Working Capital
A recent annual report for Target contained the following information (dollars in thousands) at the end of its fiscal year:

A footnote to the financial statements disclosed that uncollectible accounts amounting to $811,000 and $428,000 were written off as bad debts during year 2 and year 1, respectively. Assume that the tax rate for Target was 30 percent.
Required:
1. Determine the bad debt expense for year 2 based on the preceding facts.
2. Working capital is defined as current assets minus current liabilities. How was Target€™s working capital affected by the write-off of $811,000 in uncollectible accounts during year 2? What impact did the recording of bad debt expense have on working capital in year 2?
3. How was net income affected by the $811,000 write-off during year 2? What impact did recording bad debt expense have on net income for year2?

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Year 2 Year 1 Accounts receivable Allowance for doubtful accounts $9,094,000 (1.010,000) $8,624,000 (570,000) $8,084,000 $8,054,000