Call Systems Company, a telephone service and supply company, has just completed

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 would have been at the end of each year. The following data have been obtained from the accounts Years of Origin of Accounts Receivable Written Off as Uncollectible YearSales Uncollectible Accounts Written Off (1st) (2nd)(3rd) (4th) 1st $ 829,400 2nd 1,233,300 3rd 1,484,100 4th 2,103,200 $4,870 9,280 13,400 16,290 $4,870 2,660 $6,620 1,330 3,800 $8,270 1,340 3,860 $11,090 Required: 1. Assemble the desired data to prepare a schedule of bad debt expense. Enter decreases as negative numbers using a minus sign 2. 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?

Explanation / Answer

1. Schedule of bad debt expense:

increase

(Decrease ) in amount of expense

$4870

$8294

(1%×829400)

$3424

(8294-4870)

$3424

$9280

$12333

(1%×1233300)

$3053

$6477

(3424+3053)

2. Yes. Actual write-offs in the first two years are close to the expense that have been charged on the basis of 1% of sales. It can be see as follows:

The actual total write-offs from first year (4870+2660+1330) = $8860

Charged during the first year(estimated)=$8249

The actual total write-offs from second year (6620+3800+1340) = $11,760

Charged during second the year(estimated)=$12,333

Year expense actually reported expense based on estimate(1% of sales)

increase

(Decrease ) in amount of expense

Balance of allowance account, end of year 1

$4870

$8294

(1%×829400)

$3424

(8294-4870)

$3424

2

$9280

$12333

(1%×1233300)

$3053

$6477

(3424+3053)

3 $13400 $14841 $1,441 $7,918 4 $16,290 $21032 $4,742 $12,660

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.