For 2007, Stadler Corporation has cash sales of $385 million, credit sales of

$649 million, and Income Before Taxes of $213 million. At the end of 2007, the

balances of gross accounts receivable and allowance for doubtful accounts were

$295 million and $15 million respectively. No bad debt expense has been

recorded this year.

A) Assuming Stadler uses the receivables approach to determine the amount

of bad debt expense, prepare the journal entry to record bad debt expense

for 2007. Stadler determined that historically uncollectible accounts are

8% of accounts receivable.

B)

Stadlers management asserts that new credit policies should reduce the

uncollectible accounts to 3% of accounts receivable. Setting aside part a,

what journal entry would Stadler make if they use managements

estimate?

C) Compare the amounts reported in the following accounts for the 8% vs.

the 3% assumption.

1. Bad debt expense?

2.Net Accounts Receivable?

3.Total Assets?

4.Income before taxes?

5.Cash flow from operations?