Requirment 1
Bad debt estimate is 2110 because desired is 8000
credit balance but we have 5890 balance
Requirement 2
Dr Dr Cr
Bad debt expense 2110
Allowance for doubtful accounts 2110
Requirment 3
“Clear Optics , Inc”
Quarterly Income Statement
For the third quarter
Net sales $135800
COGS $58400
Gross profit $77400
Selling general and adminstrative exspenses $56560
Bad debt expense $2110
Income before income taxes $18730
Income tax expense $5620
Net income $13110
“With the adjustment Clear Optics would report net income of $ 11200 ; $12030 ;$ 13110 in quarters 1 ,2,3 a smooth increase in earnings”
Requirment 4
“No , controller’s advice isn’t logical way to estimate uncollectible accounts . Loss rate are supposed to be ”
“used to estimate what the allowance should be , isn’t other way around . The contreller has advised that ”
you work backwards from preffered number for allowance to forecast bad debt loss rates
most as if to legitimize his preferred allowance number
Requirment 5
“Clear Optics, Inc”
Quarterly Income Statement
For the third quarter
Net sales $135800
COGS $58400
Gross profit $77400
“Selling , general , administrative expenses” $56560
Bad debt expense $5125
Income before income tax $15715
Income tax expense $5620
Net income $10095
(4200+6050)/2=5125
Net income in the 3 quarters is not smooth increase . It increased 11200 to 12030
and then decrease to 10095 .
Requirment 6
“Yes , of course , there is proof of unethical behavior, Contreller appeared to work ”
backwards to reach a preffered allowance for doubtful acccounts balance . That appears
to have been motivated by a desire to smooth income . The decline in the historical bad
debt rate seems incompatible with the contreller’s statement which customers are slower
in paying this quarter .
