Sherie Mitchell, controller for S \& J Mitchell Co., provides you with the following list of accounts receivable that were written off during the current year:

S \& J Mitchell Co. follows the policy of debiting Bad Debts Expense as accounts are written off. Sherie Mitchell maintains that this practice is appropriate for financial statement purposes because the Internal Revenue Service will not accept other methods for recognizing bad debts.
All of S \& J Mitchell's sales are on a 30-day credit basis. Sales for the current year total \(\$ 2,470,000\). Accounts receivable at the end of the year total \(\$ 980,000\). Experience has determined that bad debts losses approximate \(5 \%\) of the accounts receivable balance.
\section*{Instructions}
In groups of four or five students, answer these questions:

(a) Do you agree or disagree with S \& J Mitchell's policy concerning recognition of bad debts? Why or why not?

(b) By what amount would net income differ if bad debts expense were computed using the percentage of receivables approach?

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Date Feb. 26 Customer Kadlec Corp. Lois Hamilton Shops Apr. 17 June 30 Oct. 4 Ilsa Kosinski Co. Eleanor Schewe Amount $ 8,700 13,219 5,500 3,187