Detecting Accounting Fraud 1st Edition by Cecil Jackson

Exercise 21

At the time of Big Company's acquisition of Small Company, Big Company believed that Small Company's reserve for doubtful debts was correctly stated at $30,000. Big Company purposely overstated the reserves at the time of acquisition by $20,000 by specifically stating that it believed that this reserve was understated by this amount.
At the end of the next accounting period following the acquisition, the reserve for doubtful debts balance was $50,000 before considering any entries for that period. Based on aging of the accounts receivable, it appeared that the reserve for doubtful debts balance needed to be stated at $55,000.
Required
a. As a result of the overstatement of the doubtful debts reserve in the acquisition period, what is the bad debt expense in the period following the acquisition?
b. If the reserve for doubtful debts had not been overstated at the time of the acquisition, what would the bad debt expense have been in the period following the acquisition?