What is effect of increasing the estimate of bad debts

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Philip Stanton, the executive manager of Thomson Pharmaceutical, receives a bonus if the company's net income in the current year exceeds net income in the past year. By the end of 2012, it appears that net income for 2012 will easily exceed net income for 2011. Philip has asked Mary Beth Williams, the company's controller, to try to reduce this year's income and “bank” some of the profits for future years. Mary Beth suggests that the company's bad debt expense as a percentage of accounts receivable for 2012 be increased from 10% to 15%. She believes 10% is the more accurate estimate but knows that both the corporation's internal and external auditors allow some flexibility in estimates. What is effect of increasing the estimate of bad debts from 10% to 15% of accounts receivable? Does Mary Beth's proposal present an ethical dilemma?

Reference no: EM13139458

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