Uncollectible accounts an Garneau Camping Products sells its products either for cash or on notes…

Uncollectible accounts an Garneau Camping Products sells its products either for cash or on notes receivable that earn interest. The business uses the direct write-off method to account for uncollectible accounts. Paul Garneau, the owner, has prepared Garneau Camping Products’ financial statements. The most recent comparative income statements, for 2010 and 2009, are as follows: Based on the increase in net income, Garneau seeks to expand his operations. He asks you to invest $60,000 in the business. You and Garneau have several meetings, at which you learn that notes receivable from customers were $120,000 at the end of 2009 and $540,000 at the end of 2010. Also, total revenues for 2010 and 2009 include interest at 12 percent on the year’s ending notes receivable balance. Total expenses include bad-debt expense of $7,200 each year, based on the direct write-off basis. Garneau estimates that bad-debt expense would be 3 percent of sales revenue if the allowance method were used. Required 1. Prepare for Garneau Camping Products a comparative single-step income statement that identifies sales revenue, interest revenue, bad-debt expense, and other expenses, all computed in accordance with GAAP. 2. Is Garneau Camping Products’ future as promising as Garneau’s income statement makes it appear? Give the reason for your answer.

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