Answered Essay: following list of accounts receivable written off in the current year.

Exercise 7-10

The chief accountant for Dickinson Corporation provides you with the following list of accounts receivable written off in the current year.

Date Customer Amount
March 31 E. L. Masters Company $6,990
June 30 Stephen Crane Associates 8,780
September 30 Amy Lowell’s Dress Shop 7,820
December 31 R. Frost, Inc. 9,360

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 because the Internal Revenue Service will not accept other methods for recognizing bad debts.

All of Dickinson Corporation’s sales are on a 30-day credit basis. Sales for the current year total $2,363,200, and research has determined that bad debt losses approximate 3% of sales.


By what amount would net income differ if bad debt expense was computed using the percentage-of-sales approach?

Net income differ under the percentage-of-sales approach $  lowerhigher

Expert Answer


Estimated bad debts expense under percentage of sales approach
Actual bad debts expense
E.L Masters 6,990
Stephen Crane 8,780
Amy 7,820
R.Fros 9,360
total actual bad debts expense 32,950
Net income will be lower by (70,896-32,950)= 37,946
Answer $37,946 lower
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