Question

Wildhorse Company has recorded bad debt expense in the past at a rate of 1.5% of accounts receivable, based on an aging analysis. In 2020, Wildhorse decides to increase its estimate to 2%. If the new rate had been used in prior years, cumulative bad debt expense would have been $407,000 instead of $305,250. In 2020, bad debt expense will be $132,000 instead of $99,000. If Wildhorse’s tax rate is 30%, what amount should it report as the cumulative effect of changing the estimated bad debt rate?

Answer 1

. If Wildhorse’s tax rate is 30%, what amount should it report as the cumulative effect of changing the estimated bad debt rate?

Answer is 0.

Step-by-step explanation:

The answer is 0 because it has not impact in the accumulated value of the bad debts expenses.

The impact is in the current year of 2020 on the estimated value of $132,000 that will be reported as bad debt expenses but there is no impact in the accumulated value becasue it only has an impact in the current estimation.