Asked by Alanna Cooperman on May 22, 2024
Verified
Refer to Scenario: BC Prints.What would be the incremental bad debt losses if the change were made?
A) $250,000
B) $130,000
C) -$130,000 (bad debt losses would decline)
D) -$250,000 (bad debt losses would decline)
Incremental Bad Debt
Additional amounts of money owed to a company that are determined to be uncollectible beyond the initially expected level of bad debt.
Bad Debt Losses
Bad debt losses refer to the amount of receivables that a company anticipates will not be collected due to customers' inability to pay.
Credit Policy
A set of guidelines that a company uses to determine the creditworthiness of customers and the terms under which it will extend credit.
- Examine and calculate the financial impact resulting from adjustments in credit terms and discount practices.
Verified Answer
1?
18_0036 ???Hirakawa?May 28, 2024
Final Answer :
C
Explanation :
With the proposed change, the bad debt loss percentage is expected to decrease from 5% to 4%. Therefore, there would be a decline in bad debt losses, and the answer would be negative. The amount of the decline would be $130,000 (5% of $15 million is $750,000, and 4% of $15.5 million is $620,000, so the difference is $130,000).
Learning Objectives
- Examine and calculate the financial impact resulting from adjustments in credit terms and discount practices.