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 2.00% of credit sales in prior periods. Presented below is the company's forecast of sales and expenses over the next three years.

Problem:

Calculate Bad Debt Expense and net income for each of the three years, assuming uncollectible accounts are estimated as 2.00% of sales.

Assume that the company changes its estimate of uncollectible credit sales to 2.00% in year 1, 3.00% in year 2 and 2.50% 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 Sales Revenue $379,000 $385,000 $384,000 Bad Debt Expense Unknown Unknown Unknown Other Expenses 331,000 341,000 332,750 Net Income Unknown Unknown Unknown

Explanation / Answer

Part A Particulars Year 1 Year 2 Year 3 Sales revenue (A) 379000 385000 384000 Bad debt expense (B)= (A) X2% 7580 7700 7680 Other expenses (C ) 331000 341000 332750 Net income ( A - B - C) 40420 36300 43570 Part B Particulars Year 1 Year 2 Year 3 Sales revenue (A) 379000 385000 384000 Bad debt %age (B) 2% 3% 2.5% Bad debt expense (C)= (A) X (B) 7580 11550 9600 Other expenses (D ) 331000 341000 332750 Net income ( A - C - D) 40420 32450 41650

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