INCOME EFFECTS OF UNCOLLECTIBLE ACCOUNTS The credit manager and the accountant for Goldsmith Company are attempting to assess the effect on net income of writing off $100,000 of receivables. Goldsmith uses the aging method of determining bad debt expense and has the following aging schedule for its accounts receivable at December 31, 2009:

Accounts Receivable Category Amount Proportion Expected to Default Current $2,980,400 0.004 1–30 days past due 722,600 0.035 31–60 days past due 418,500 0.095 Over 60 days past due 322,800 0.250

$4,444,300 The receivables being considered for write-off are all over 60 days past due.

Required:

. Assume that the tax rate is 30 percent. What will be the effect on net income if the

$100,000 is written off?

. What data would you examine to provide some assurance that a company was not holding uncollectible accounts in its accounts receivable rather than writing them off when they are determined to be uncollectible?

Case