Question
The chief accountant for Dickinson Corporation provide you the following list of accounts receivable that were written off in the current year : Date: Mar.
The chief accountant for Dickinson Corporation provide you the following list of accounts receivable that were written off in the current year : Date: Mar. 31, Eli Masters Ltd. Amount $ 7,700; June 30, Crane Associates, $ 6800; Sept. 30, Annie Lowell's Dress Shop $ 12,000, Dec. 31, Vahik Uzerian $6830. Dickinson Corporation follows the policy of debting Bad Debt expenses as accounts are written off.The cheif accountant maintains that this procedure is appropriate for financial statement purposes. All Dickinson corporation's sales are on a 30 day credit basis, and the accounts written off all related to current year sales. Sales for the year total $ 3.2 millon, and your research suggests that bad debt losses approximate 2% of sales. a) Do you agree with Dickson Corporation's policy of bad debt expense? why? b) By what amount would net income differ if bad debt expense calculated using the allowace method and percentage of sales approach? c) Under what conditions is using the direct writeoff method justified?
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