ABC has a loss of $100 million in 2009 prior to accounting for doubtful accounts
ABC has a loss of $100 million in 2009 prior to accounting for doubtful accounts. ABC has accounts receivable of $500 million and the balance in allowance for doubtful accounts is $10 million. Management estimates that $50 million of the receivables may become uncollectible. According to management’s projections they expect to have $100 million in income in the next year (2010). Based on their expectation of next year’s sales and collections from customers, they also estimate that the balance in allowance for doubtful accounts in 2010 should be $100 million. They also expect to write off $20 million in receivables in 2010. Managers receive a bonus of 10% of ABC’s income. How can the managers of ABC maximize their total bonus for 2009 and 2010 by “creative” utilization of the accounting for doubtful accounts?
