The Dubious Company operates in an industry where all sales are made on account. The company has experienced bad debt losses of 1.70% of credit sales in prior periods.
Presented below is the company's forecast of sales and expenses over the next three years.
Required:
a. Calculate Bad Debt Expense and net income for each of the three years, assuming uncollectible accounts are estimated as 170% of sales
b. Assume that the company changes its estimate of uncollectible credit sales to 1.70% in Year 1, 2.70% in Year 2 and 2 20% in Year 3. Calculate the Bad Debt Expense and net income for each of the three years under this alternative scenario.
Homework Answers
| The dubious Company - Part a | |||
| Year 1 | Year 2 | Year 3 | |
| Sales ( a ) | 369000 | 375000 | 374000 |
| Bad debt exp. ( 1.7% * a ) | 6273 | 6375 | 6358 |
| Other exp. | 339000 | 341000 | 335750 |
| Net income | 23727 | 27625 | 31892 |
| The dubious Company - Part b | |||
| Year 1 | Year 2 | Year 3 | |
| Sales ( a ) | 369000 | 375000 | 374000 |
| Bad debt exp. | 6273 | 10125 | 8228 |
| Other exp. | 339000 | 341000 | 335750 |
| Net income | 23727 | 23875 | 30022 |
| The dubious Company - Part a | |||
| Year 1 | Year 2 | Year 3 | |
| Sales ( a ) | 369000 | 375000 | 374000 |
| Bad debt exp. ( 1.7% * a ) | =B4*1.7% | =C4*1.7% | =D4*1.7% |
| Other exp. | 339000 | 341000 | 335750 |
| Net income | =B4-B5-B6 | =C4-C5-C6 | =D4-D5-D6 |
| The dubious Company - Part b | |||
| Year 1 | Year 2 | Year 3 | |
| Sales ( a ) | 369000 | 375000 | 374000 |
| Bad debt exp. | =B12*1.7% | =C12*2.7% | =D12*2.2% |
| Other exp. | 339000 | 341000 | 335750 |
| Net income | =B12-B13-B14 | =C12-C13-C14 | =D12-D13-D14 |
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