Amdahl Corporation manufactures large-scale, high performance computer systems.

ID: 2388656 • Letter: A

Question

Amdahl Corporation manufactures large-scale, high performance computer systems. In a recent annual report, the balance sheet included the following information (dollars in thousands):

Current Year Previous Year
Current assets:
Receivables, net of allowances of
$5,042 and $6,590 in the previous year $504,944 $580,640

In addition, the income statement reported sales revenue of $2,158,755 ($ in thousands) 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 $2,230,065 ($ in thousands). There were no recoveries of accounts receivable previously written off.

Explanation / Answer

(1)(a) Compute amount of uncollectibles written off by Amdahl during the year:

Allowance for doubtful accounts is a contra current asset account associated with accounts receivable. The net realizable value of accounts receivable is obtained by subtracting the credit balance of allowance for doubtful accounts from the debit balance in accounts receivable.

Calculate allowance for uncollectible write off during the year:

Beginning year accounts receivables ($580,640 + $6,590)

$587,230

Add: Credit sales

$2,158,755

Less: Cash collections

($2,230,065)

Less: Ending accounts receivables ($504,944 + $5,042)

($509,986)

Written off balance

$5,934

Therefore, the write off balance in for the current year is $5,934.

(1)(b) Calculate amount of bad debt expense that Amdahl would include in its income statement:

The bad debt expense for the year is computed by deducting the write off during the year and the ending allowance for uncollectible. Compute the bad debt expense:

Bad debt expense = $6,590