The following data pertains to the operations of Knight Corporation for 2012:

The controller is trying to decide which method of accounting for bad debts to use. The company is attempting to maximize its net income to meet projected figures. The bad debt expense is material to the company's financial statements.
Required
a. Calculate bad debt expense for 2012 under the direct write-off method and the allowance method.
b. Compute net income under both methods (assume a tax bracket of 30%).
c. Does Knight have the option of which method to use under GAAP?

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Net credit sales Net income (before bad debt expense) Write-offs of uncollectible accounts Estimated uncollectible percentage of net credit sales $725,000 135,000 17,500 3%