Finc 406 - Module 6 Concept Check Study Guide Rated A+

By underestimating the current year's allowance, Dick's Sporting Goods reported pretax income that was higher by $750 thousand. The actual pretax income should have been $545,357 instead of $546,107. The reason for the increase in pre-tax income is that the expenses for the current year are too low by $750 thousand. Future periods' expenses will have to be higher by this amount to compensate for the 2013 underestimation. The bottom line is that future periods' income will be lower. This type of reporting strategy is referred to as income shifting. The company has misstated its true financial performance in 2013 and future years as well. {Ans: Dick's Sporting Goods Incorporated reported Accounts receivable, net of $60,779 thousand in 2013 and an allowance for doubtful accounts of $3,109 thousand. Pretax income in 2013 was $546,107 thousand. If Dick's Sporting Goods' managers had purposely underestimated the allowance for doubtful accounts by $750 thousand, how would the 2013 income statement be affected? What about future financial statements?}Balance in allowance at the beginning of the year + bad debt expense - accounts written off during the year = balance in allowance at the end of the year. Bad debt expense = $296 million