Exercise 7-10

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		$8,230
June 30		Stephen Crane Associates		7,970
September 30		Amy Lowells Dress Shop		7,660
December 31		R. Frost, Inc.		8,470

Dickinson Corporation 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 Dickinson Corporations sales are on a 30-day credit basis. Sales for the current year total $2,226,600, and research has determined that bad debt losses approximate 4% of sales. (b) By what amount would net income differ if bad debt expense was computed using the percentage-of-sales approach?

Net income differ under the percentage-of-sales approach

$