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 $126 in 2015 and $117 in 2014 $ 4,277 $ 4,713 In addition, the income statement reported sales revenue of $27,722 ($ 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 $28,737 ($ in millions). There were no recoveries of accounts receivable previously written off. Required: 1. Compute the following ($ in millions): a. The net amount of bad debts written off or reinstated by EMC during 2015. b. The amount of bad debt expense or reduction of bad debt expense that EMC included in its income statement for 2015. 2. Suppose that EMC had used the direct write-off method to account for bad debts. Compute the following ($ in millions): a. The accounts receivable information that would be included in the 2015 year-end balance sheet. b. The amount of bad debt expense or reduction of bad debt expense that EMC included in its income statement for 2015.

Answer 1

1
a.	Amount of baddebts written off:
						$	$
	Ending balance of accounts receivable (Gross)				(4277+126)		4403
	Cash collected from customers						28737
	Total						33140
	Less:
	Beginning balance of accounts receivable (Gross)				(4713+117)	4830
	Credit Sales					27722	32552
	Baddebts written-off						588
b.	Amount of baddebt expense for2015:
						$
	Ending balance of allowances					126
	Baddebts written-off					588
	Total					714
	Less: Beginning balance of allowance					117
	Baddebt expense for 2015					597
2
a.	Accounts receivable balance for 2015:
						$	$
	Beginning balance of accounts receivable (Gross)				(4713+117)		4830
	Add: Credit sales						27722
							32552
	Less:
	Cash collected from customers					28737
	Baddebts written-off during 2015					588	29325
	Accounts receivable balance for 2015						3227
b.	Baddebt expense=Baddebts written-off during 2015=$ 588