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explain how the accounting for bad debts can be used for earnings management 645015

1. What is the theoretical justification of the allowance method as contrasted with the direct write off method of accounting for bad debts?

2. Indicate how well the percentage of sales method and the aging method accomplish the objectives of the allowance method of accounting for bad debts.

3. Of what merit is the contention that the allowance method lacks the objectivity of the direct write off method? Discuss in terms of accounting’s measurement function.1

4. Explain how the accounting for bad debts can be used for earnings management.

5. Because of calamitous earthquake losses, Bernstein Company, one of your client’s oldest and largest customers, suddenly and unexpectedly became bankrupt. Approximately 30% of your client’s total sales have been made to Bernstein Company during each of the past several years. The amount due from Bernstein Company—none of which is collectible—equals 22% of total accounts receivable, an amount that is considerably in excess of what was determined to be an adequate provision for doubtful accounts at the close of the preceding year. How would your client record the write off of the Bernstein Company receivable if it is using the allowance method of accounting for bad debts? Justify your suggested treatment.

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