Call Systems Company, a telephone service and supply company, has just completed
ID: 2445644 • Letter: C
Question
Call Systems Company, a telephone service and supply company, has just completed its fourth year of operations. The direct write-off method of recording bad debt expense has been used during the entire period. Because of substantial increases in sales volume and the amount of uncollectible accounts, the company is considering changing to the allowance method. Information is requested as to the effect that an annual provision of 1% of sales would have had on the amount of bad debt expense reported for each of the past four years. It is also considered desirable to know what the balance of Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts:
Year
Sales
Uncollectible Accounts Written Off
Years of Origin of Accounts Receivable
Written Off as Uncollectible
(1st)
(2nd)
(3rd)
(4th)
Assemble the desired data to prepare a schedule of bad debt expense. Enter decreases as negative numbers using a minus sign.
Call Systems Company
Schedule of Bad Debt Expense
1
Year
Expense Actually Reported
Expense Based on Estimate
Increase (Decrease) in Amount of Expense
Balance of Allowance Account, End of Year
2
1st
3
2nd
4
3rd
5
4th
Experience during the first four years of operations indicated that the receivables were either collected within two years or had to be written off as uncollectible. Does the estimate of 1% of sales appear to be reasonably close to the actual experience with uncollectible accounts originating during the first two years?
No
Yes
Unable to determine from data provided
Year
Sales
Uncollectible Accounts Written Off
Years of Origin of Accounts Receivable
Written Off as Uncollectible
(1st)
(2nd)
(3rd)
(4th)
1st $ 884,400 $ 4,880 $4,880 2nd 1,192,100 9,790 2,730 $7,060 3rd 1,470,000 13,010 910 3,670 $8,430 4th 2,106,400 17,010 1,780 4,360 $10,870Explanation / Answer
Year Sales Expense based on estimate Expense actually reported Increse (Decrease) Balance in allowance accounts 1 884400 8844 4480 4364 2 1192100 11921 9790 5310 6495 3 1470000 14700 13010 3220 8185 4 2106400 21064 17010 4000 12239 1 year provision 8844 Bad debts incured on 1 st year receivables Year 1 4880 Year 2 2730 Year 3 910 Total baddebts 8520 Difference 324 2 year provision 11921 Bad debts incured on 1 st year receivables Year 1 7060 Year 2 3670 Year 3 1780 Total baddebts 12510 Difference -589 Since the difference is immeterial 1 % provision is adequate
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.