A recent annual report for Target contained the following info at the end of the fiscal year:
A/R year 2 = $9,094,000 Allowance for doubtful accounts year 2 = $(1,010,000)
A/R year 1 = $8,624,000 Allowance for doubtful accounts year 1 = $(570,000)
A footnote to the financial statements disclosed that uncollectible accounts amounting to $811,000 and $428,000 were written off as bad debts during year 2 and year 1, respectively. Assume that the tax rate for the company is 30%.
1. Determine the bad debt expense for the year 2 based on the preceding facts. (hint: use the allowance for doubtful accounts t-account to solve for the missing value).
2. How was the company's working capital affected by the write off of 811,000 in year 2. What impact did the recording of bad debt expense have on working capital in year 2?
3. How was the net income affected by the 811,000 write off during year 2? What impact did recording the bad debt expense have on net income for year 2?