Marvin Company is a subsidiary of Hughes Corp. The controller believes that the yearly allowance for doubtful accounts for Marvin should be 8% of gross accounts receivable. Given the recession and the high interest rate environment, the president, nervous that the parent company might expect the subsidiary company to sustain its 10% growth rate, suggests that the controller increase the allowance for doubtful accounts to 9%. The president thinks that the lower net income, which reflects a 6% growth rate, will be a more sustainable rate for Marvin Company. On the basis of the case above: In a recessionary environment with tight credit and high interest rates, What steps Marvin Company might consider to improve the accounts receivable situation? Evaluate each step identified in terms of the risks and costs involved. Should the controller be concerned with Marvin Company's growth rate in estimating the allowance? Does the president's request pose an ethical dilemma for the controller? What reasons does it make sense under?
Marvin Company is a subsidiary of Hughes Corp. The controller believes that the yearly allowance for doubtful accounts for Marvin should be 8% of gross accounts receivable. Given the recession and the high interest rate environment, the president, nervous that the parent company might expect the subsidiary company to sustain its 10% growth rate, suggests that the controller increase the allowance for doubtful accounts to 9%. The president thinks that the lower net income, which reflects a 6% growth rate, will be a more sustainable rate for Marvin Company. On the basis of the case above: In a recessionary environment with tight credit and high interest rates, What steps Marvin Company might consider to improve the accounts receivable situation? Evaluate each step identified in terms of the risks and costs involved. Should the controller be concerned with Marvin Company's growth rate in estimating the allowance? Does the president's request pose an ethical dilemma for the controller? What reasons does it make sense under?
Chapter18: The Management Of Accounts Receivable And Inventories
Section: Chapter Questions
Problem 15P
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Marvin Company is a subsidiary of Hughes Corp. The controller believes that the yearly allowance for doubtful accounts for Marvin should be 8% of gross
On the basis of the case above:
- In a recessionary environment with tight credit and high interest rates, What steps Marvin Company might consider to improve the accounts receivable situation? Evaluate each step identified in terms of the risks and costs involved.
- Should the controller be concerned with Marvin Company's growth rate in estimating the allowance?
- Does the president's request pose an ethical dilemma for the controller? What reasons does it make sense under?
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