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 1.20% 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 Year 3 382,000 $ 381,000 Unknown 339,750 Unknown Sales Revenue $ 376,000 Bad Debt Other Expense Net Income Unknown 335,000 Unknown Unknown 339,000 Unknown Expense Required: a. Calculate Bad Debt Expense and net income for each of the three years, assuming uncollectible accounts are estimated as 1.20% of sales 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

376000

382000

381000

% of Uncollectable accounts

1.2%

1.2%

1.2%

Bad debt Expense = Sales Revenue * % of Uncollectable accounts

4512

4584

4572

Year 1

Year 2

Year 3

Sales Revenue

376000

382000

381000

-Bad debt Expense

4512

4584

4572

-Other Expense

335000

339000

339750

Net Income

36488

38416

36678

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

Year 1

Year 2

Year 3

Sales Revenue

376000

382000

381000

% of Uncollectable accounts

1.2%

2.2%

1.7%

Bad debt Expense = Sales Revenue * % of Uncollectable accounts

4512

8404

6477

Year 1

Year 2

Year 3

Sales Revenue

376000

382000

381000

-Bad debt Expense

4512

8404

6477

-Other Expense

335000

339000

339750

Net Income

36488

34596

34773

Year 1

Year 2

Year 3

Sales Revenue

376000

382000

381000

% of Uncollectable accounts

1.2%

1.2%

1.2%

Bad debt Expense = Sales Revenue * % of Uncollectable accounts

4512

4584

4572

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