CompuCredit is a credit card issuer in Atlanta. It prides itself on making credit cards available to almost anybody in a matter of seconds over the Internet. The cost to the consumer is an interest rate of 28 percent, about double that of companies that provide cards only to customers with good credit.

Despite its high interest rate, CompuCredit has been successful, reporting 1.9 million accounts and an income of approximately $100 million in a recent year. To calculate its income, the company estimates that 10 percent of its

$1.3 billion in accounts receivable will not be paid; the industry average is 7 percent. Some analysts have been critical of CompuCredit for being too optimistic in its projections of losses.19 Why are estimates necessary in accounting for receivables? If CompuCredit were to use the same estimate of losses as other companies in its industry, what would its income have been for the year? How would one determine if CompuCredit’s estimate of losses is reasonable?