Question

TLC Inc. manufactures large-scale, high-performance computer systems. In a recent annual report, the balance sheet included the following information ($ in millions):

	2015			2014
Current assets:
Receivables, less allowances of $306 in 2015 and $342 in 2014	$	5,777		$	6,213

In addition, the income statement reported sales revenue of $42,812 ($ in millions) for the current year. All sales are made on a credit basis. The statement of cash flows indicates that cash collected from customers during the current year was $43,737 ($ in millions). There were no recoveries of accounts receivable previously written off.

Required:
1. Compute the following ($ in millions):

1. The amount of bad debts written off by TLC during 2015.
2. The amount of bad debt expense that TLC included in its income statement for 2015.
3. The approximate percentage that TLC used to estimate bad debts for 2015, assuming that it used the income statement approach.

2. Suppose that TLC had used the direct write-off method to account for bad debts. Compute the following ($ in millions):

1. The accounts receivable information that would be included in the 2015 year-end balance sheet.
2. The amount of bad debt expense that TLC would include in its 2015 income statement.

Req 1 Req 2A Req 2B Calculate the amount of bad debts written off by TLC during 2015, bad debt expense that TLC would include in its income statement for 2015 and the approximate percentage that TLC used to estimate debts for 2015, assuming that it uses the income statement approach. (Enter your answers in millions, Loss amounts should be indicated by a minus sign and round your percentage answer to 1 decimal place.) Show less A a. b. C. Bad debts written off Bad debt expense Approximate percentage

Answer 1

ANSWER

1
a.	Amount of bad debts written off:
			$	$
	Ending balance of accounts receivable (Gross)	(5,777+306 )		6,083
	Cash collected from customers			43,737
	Total			49,820
	Less:
	Beginning balance of accounts receivable (Gross)	(6,213+342)	6,555
	Credit Sales		42,812	49,367
	Baddebts written-off			453
b.	Amount of baddebt expense for 2015:
			$
	Ending balance of allowances		306
	Baddebts written-off		453
	Total		759
	Less: Beginning balance of allowance		342
	Baddebt expense for 2015		417
c.	In income statement approach, baddebt is computed as a % of sales
	Baddebt expense=$ 417
	Sales=$ 42,812
	% of sales=417/42,812=0.0097=0.97 %
2
a.	Accounts receivable balance for 2015:
			$	$
	Beginning balance of accounts receivable (Gross)	(6,213 +342)		6,555
	Add: Credit sales			42,812
				49,367
	Less:
	Cash collected from customers		43,737
	Baddebts written-off during 2015		453	44,190
	Accounts receivable balance for 2015			5,177
b.	Baddebt expense=Baddebts written-off during 2015=$ 453

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