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

Requirment 1

Bad debt estimate is 2110 because desired is 8000
credit balance but we have 5890 balance

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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 .

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