Chapter 4 - Income Statement and Related Information - Review and Practice - Brief Exercises - Page 181: BE4-7

The new estimate for bad debts should not be applied retrospectively. Therefore, the rate of 2% should only be used in 2017. Adjustments to the bad debts expense should not be applied to past years since the change in the estimate from 1.5% to 2% does not amount to an error. Accordingly, the amount of bad debt expense will result in a 0.5% increase in total expenses and a 0.5% reduction in net income.

The new estimate for bad debts should not be applied retrospectively. Therefore, the rate of 2% should only be used in 2017. Adjustments to the bad debts expense should not be applied to past years since the change in the estimate from 1.5% to 2% does not amount to an error. Accordingly, the amount of bad debt expense will result in a 0.5% increase in total expenses and a 0.5% reduction in net income.