Vandross Company has recorded bad debt expense in the past at a rate of 1.5% of
ID: 2489096 • Letter: V
Question
Vandross Company has recorded bad debt expense in the past at a rate of 1.5% of net sales. In 2014, Vandross decides to increase its estimate to 2%. If the new rate had been used in prior years, cumulative bad debt expense would have been $398,750 instead of $291,370. In 2014, bad debt expense will be $125,590 instead of $92,740. If Vandross's tax rate is 28%, 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.) The cumulative effect of changing the estimated bad debt rateExplanation / Answer
Total interest expense in prior years = 92740+291370 i.e 384110
Total interest expense as per new estimate = 398750+125590 i.e 524340
Total change in interest expense as per new estimate = 524340-384110 i.e 140230
Tax saving on additional interest = 140230*28% i.e 39264
Net interest expense to be reported = 140230-39264 i.e 100965
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