the sales revenue of J co was $ 2 million and its receivables were 5% of sales. J Co wishes to have a specific allowance for receivables of $4000 which would make the allowance 1/3 higher than the current assets.
The correct answer is 4000 x 3/4 = 3000
4000 -3000 = 1000 ( profit reduced )
Why did they multiplied by 3/4 rather than by 1/3 ?