value: 20.00 points The Dubious Company operates in an industry where all sales

Question

value: 20.00 points The Dubious Company operates in an industry where all sales are made on account. The company has experienced bad debt losses of 1.90% of credit sales in prior periods. Presented below is the company's forecast of sales and expenses over the next three years Year 1 Year 2 380,000 379,000 Unknown 339,750 Unknown Sales Revenue374,000 Bad Debt Other Expenses Net Income Unknown 340,000 Unknown Unknown 336,000 Unknown Expense Required a. Calculate Bad Debt Expense and net income for each of the three years, assuming uncollectible accounts are estimated as 1 .90% 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 1.90% in year 1, 2.90% in year 2 and 2.40% 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)) Calculation of Net Income and Bad Debt Expense:

Year 1

Year 2

Year 3

Sales Revenue

374000

380000

379000

% of Uncollectable accounts

1.90%

1.90%

1.90%

Bad debt Expense = Sales Revenue * % of Uncollectable accounts

7106

7220

7201

Year 1

Year 2

Year 3

Sales Revenue

374000

380000

379000

-Bad debt Expense

7106

7220

7201

-Other Expense

340000

336000

339750

Net Income

26894

36780

32049

((b)) Calculation of Net Income and Bad Debt Expense:

Year 1

Year 2

Year 3

Sales Revenue

374000

380000

379000

% of Uncollectable accounts

1.90%

2.90%

2.40%

Bad debt Expense = Sales Revenue * % of Uncollectable accounts

7106

11020

9096

Year 1

Year 2

Year 3

Sales Revenue

374000

380000

379000

-Bad debt Expense

7106

11020

9096

-Other Expense

340000

336000

339750

Net Income

26894

32980

30154

Year 1

Year 2

Year 3

Sales Revenue

374000

380000

379000

% of Uncollectable accounts

1.90%

1.90%

1.90%

Bad debt Expense = Sales Revenue * % of Uncollectable accounts

7106

7220

7201

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