Analyze the following partial disclosures from Lynx Enterprises’ Income Statemen

Question

Analyze the following partial disclosures from Lynx Enterprises’ Income Statement, Balance Sheet and Statement of Cash Flows to answer these questions:

1-What is the dollar value of accounts that Lynx wrote off during the quarter?

2-What is the amount of credit sales made by Lynx during the quarter?

3-If Lynx exclusively uses the balance sheet method, approximately what percent of its receivables does it assess as bad debts? If Lynx exclusively uses the income statement, what percent of its receivables does it assess as bad debts?

Note: Lynx Enterprises does not reinstate a previously written off receivable unless it receives cash from the account holder.

Lynx Enterprises Quarterly Income Statements for the period

Quarter 3

7/1 – 9/30

Quarter 2

4/1 - 6/30

Sales Revenue, net

$4,576,483

$4,373,370

Selling, General and Administrative Expenses

1,410,250

1,295,000

Bad Debt Expense

24,958

35,840

Operating Income

$3,141,275

$3,042,530

Interest Expense

125,000

127,500

Tax Expense

$1,206,510

$1,166,012

Net Income

$1,809,765

$1,749,018

Lynx Enterprises Quarterly Consolidated Statement of Financial Position

9/30

6/30

Accounts Receivable, net of Allowances of $38,730 and $43,730 on 6/30 and 9/30 respectively

$2,895,275

$3,237,723

Lynx Enterprises Quarterly Direct Method Statement of Cash Flows for the period

Quarter 3

7/1 – 9/30

Quarter 2

4/1 - 6/30

Cash collections from Receivables

$4,576,483

$4,373,370

Cash collections from Reinstated Accounts

1,410,250

1,295,000

Quarter 3

7/1 – 9/30

Quarter 2

4/1 - 6/30

Sales Revenue, net

$4,576,483

$4,373,370

Selling, General and Administrative Expenses

1,410,250

1,295,000

Bad Debt Expense

24,958

35,840

Operating Income

$3,141,275

$3,042,530

Interest Expense

125,000

127,500

Tax Expense

$1,206,510

$1,166,012

Net Income

$1,809,765

$1,749,018

Explanation / Answer

1. Lynx Enterprises wrote off during the Quarter 3 is $24958 and Quarter 2 $35840

2. If we follow by the Income statement then the credit sales for the Quarter 3 will be Total Sales-(Receivable+Allowances)= 4576483-(2895275+43730)= $1637478 ; Credit Sales for the Quarter 2 will be= 4373370-(3237723+38730)= $ 1096917

3. According to the Balance sheet method % of Bad debts assesed for Quarter 3 will be- Bad Debt expense/Cash collections- Reinstated account*100 ; 24958/4576483-1410250*100= 0.788%

For the quarter 2; 35840/4373370-1295000*100= 1.16%

According to the Income statements method Bad Debt Expense % for Quarter 3 will be= 24958/4576483*100=0.545%

For the Quarter 2 will be: 35840/4373370*100= 0.819%

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