Chapter 8, Problem 8.9EYCT

(a)

To determine

Allowance method

It is a method for accounting bad debt expense, where uncollectible accounts receivables are estimated, and recorded at the end of particular period. Under this method, bad debts expenses are estimated, and recorded prior to the occurrence of actual bad debt, in compliance with matching principle, by using the allowance for doubtful account.

Ethics case:

Corporation M’s current year net income appears to increase by 10%.  But, Corporation M’s president suggests the controller to increase the percentage of allowance for doubtful accounts from the 2% to 4% in order to show the income growth rate to 6% from its present 10% and thinks that the reduced growth rate can be sustainable in future years.

To identify: The stakeholders of Corporation M.

(b)

To determine

To identify: Whether Corporation M’s president’s request of increasing allowance for doubtful accounts pose an ethical dilemma for the controller.

(c)

To determine

To describe: Whether controller has to concern about Corporation M’s growth rate in estimating the allowance for doubtful accounts.