# Dortmund Stockyard reports $896,000 in credit sales for 2018 and$802,670 in 2019. It has a $675,000 accounts receivable balance at the end of 2018, and$682,000 at the end of 2019. Dortmund uses the balance sheet method to record bad debt estimation at 8% during 2018. To manage earnings more favorably, Dortmund changes bad debt estimation to the income statement method at 6% during 2019. A. Determine the bad debt estimation for 2018. B. Determine the bad debt estimation for 2019. C. Describe a benefit to Dortmund Stockyard in 2019 as a result of its earnings management.

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### Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685

#### Solutions

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Section
FindFindarrow_forward

### Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 9, Problem 13EA
Textbook Problem
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## Dortmund Stockyard reports $896,000 in credit sales for 2018 and$802,670 in 2019. It has a $675,000 accounts receivable balance at the end of 2018, and$682,000 at the end of 2019. Dortmund uses the balance sheet method to record bad debt estimation at 8% during 2018. To manage earnings more favorably, Dortmund changes bad debt estimation to the income statement method at 6% during 2019.A. Determine the bad debt estimation for 2018.B. Determine the bad debt estimation for 2019.C. Describe a benefit to Dortmund Stockyard in 2019 as a result of its earnings management.

To determine

(a)

Introduction:

Bad debt is referred to as the sum total which cannot be collected from client accounts. Bad debt adversely impacts the accounts receivables.

To calculate:

The bad debt estimation for 2018.

### Explanation of Solution

Calculate bad debt expense using balance sheet method in 2018:

Substitute \$675,000 for accounts receivables and 8% for percentage of estimated uncollectible in the above formula

To determine

(b)

To calculate:

The bad debt estimation for 2019.

To determine

(c)

To explain:

The benefit to the enterprise in 2019 as a result of its earnings management.

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