he Dubious Company operates in an industry where all sales are made on account.

Question

he Dubious Company operates in an industry where all sales are made on account. The company has experienced bad debt losses of 1.80% of credit sales in prior periods. Presented below is the company's forecast of sales and expenses over the next three years Year 3 ear 1 Unknown 333,000 Unknown ear 385,000$ 384,000 Unknown 340,750 Unknown Sales Revenue $379,000 Bad Debt Other Expenses Net Income Unknown 337,000 Unknown Expense Required a. Calculate Bad Debt Expense and net income for each of the three years, assuming uncollectible accounts are estimated as 1.80% of sales Year 1 Year 2 Year 3 Bad Debt Expense Net Income -Assume that the company changes its estimate of uncollectible credit sales to 1.80% in year 1, 2.80% in year 2 and 2.30% in year 3, Calculate the Bad Debt Expense and net income for each of the three years under this alternative scenario ear 1 ear Year 3 Bad Debt Expense Net Income

Explanation / Answer

a)

c)

Formula year1 2 3 Bad debt expense Sales * % of sales 379000*.018=6822 385000*.018=6930 384000*.018= 6912 Net Income sales - bad debt expense -other expense 379000-6822-333000= 39178 385000-6930-337000 = 41070 384000-6912-340750=36338

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