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

Question

The Dubious Company operates in an industry where all sales are made on account. The company has experienced bad debt losses of 1.50% of credit sales in prior periods. Presented below is the company's forecast of sales and expens es over the next three years. Year 1 Year 2 Year 3 Sales Revenue 376,000 382,000 381,000 Bad Debt Other Expenses339,000 Net Income Unknown 337,000 Unknown Unknown Unknown 337,750 Unknown Expense Unknown Required a. Calculate Bad Debt Expense and net income for each of the three years, assuming uncollectible accounts are estimated as 1.50% of sales Year 1 Year 2 Year 3 Bad Debt Expense Net Income C. Assume that the company changes its estimate of uncollectible credit sales to 1.50% in year 1, 2.50% in year 2 and 2.00% in year 3, Calculate the Bad Debt Expense and net income for each of the three years under this alternative scenario Year 1 Year 2 Year 3 Bad Debt Expense Net Income

Explanation / Answer

a) Calculate bad debt expense and net income :

b) Calculate bad debt expense and net income :

Year 1 Year 2 Year 3 Bad debt expense 376000*1.5% = 5640 382000*1.5% = 5730 381000*1.5% = 5715 Net income 31360 39270 37535

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