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 uncollectible account expense and has the following aging schedule for its accounts receivable at December 31, 19x4:

The receivables being considered for write-off are all over 60 days past due. lol REQUIRED:
1. Assume that the tax rate is 30%. What will be the effect on net income if the $100,000 is written off?
2. 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?

Transcribed Image Text:

ACCOUNTS RECEIVABLE CATEGORY PROPORTION AMOUNT EXPECTED TO DEFAULT Current $2,980,400 .004 1-30 days past due... 722,600 .035 31-60 days past due 418,500 .095 Over 60 days past due 322,800 .250 $4,444,300