The vice president for Tres Corporation provides you with the following list of accounts receivable written off in the current year. (These accounts were recognized as bad debt exf274pense at the time they were written off; i.e., the company was using the direct write off method.)
|
Date |
Customer |
Amount |
|
30 Mar |
Rasmussen Company |
$12,000 |
|
31 Jul |
Dodge Company |
7,500 |
|
30 Sep |
Larsen Company |
10,000 |
|
42,004 |
Peterson Company |
12,000 |
Tres Corporation s sales are all on an n/30 credit basis. Sales for the current year total $3,600,000, and analysis has indicated that uncollectible receivable losses historically approximate 1.5% of sales.
1. Do you agree or disagree with Tres Corporation s policy concerning recognition of bad debt expense? Why or why not?
2. If Tres were to use the percentage of sales method for recording bad debt expense, by how much would income before income taxes change for the current year?