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Sweet Company has recorded bad debt expense in the past at a rate of 1.5% of...

Sweet Company has recorded bad debt expense in the past at a rate of 1.5% of accounts receivable, based on an aging analysis. In 2017, Sweet decides to increase its estimate to 2%. If the new rate had been used in prior years, cumulative bad debt expense would have been $399,500 instead of $291,800. In 2017, bad debt expense will be $136,600 instead of $92,470. If Sweet’s tax rate is 30%, what amount should it report as the cumulative effect of changing the estimated bad debt rate? (Do not leave any answer field blank. Enter 0 for amounts.)

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Answer #1

The answer is 0.

The cumulative effect of changing the estimated bad debt will be 0, because the change in allowance rate will be considered as the change in the estimate and we don't do any cumulative adjustment for change in Estimate. That means changes in the estimate is not done retrospectively. It is done prospectively.


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