E7-10 (L03) (Bad-Debt Reporting) 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 $7,800

June 30 Stephen Crane Associates 6,700

September 30 Amy Lowells Dress Shop 7,000

December 31 R. Frost, Inc. 9,830

Dickinson 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 Dickinsons sales are on a 30-day credit basis. Sales for the current year total $2,200,000. The balance in Accounts

Receivable at year-end is $77,000 and an analysis of customer risk and charge-off experience indicates that 12% of receivables

will be uncollectible (assume a zero balance in the allowance).

Instructions

(a) Do you agree or disagree with Dickinsons policy concerning recognition of bad debt expense? Why or why not?

(b) By what amount would net income differ if bad debt expense was computed using the percentage-of-receivables

approach?