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 bad debt expense and has the following aging schedule for its accounts receivable at December 31, 2009:

The receivables being considered for write-off are all over 60 days past due.

Required:
1. Assume that the tax rate is 30 percent. 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 beuncollectible?

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Accounts Receivable Category Current 1-30 days past due 31-60 days past due Over 60 days past due Proportion Expected to Default 0.004 0.035 0.095 0.250 Amount $2,980,400 722,600 418,500 322,800 $4,444,300