What will be the effect on net income

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Reference no: EM13940825

Case: INCOME EFFECTS OF UNCOLLECTIBLE ACCOUNTS

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:

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

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 be uncollectible?

Reference no: EM13940825

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