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: r, Year of Origin of Accounts Receivable Written Off as Uncollectible Uncollectible Accounts Written Off Sales 2nd 3rd 4th Year 1st $ 900,000 $ 4,500 $4,500 1st 2nd $6,600 1,250,000 9,600 3,000 3rd 1,500,000 $8,100 12,800 1,000 3,700 4th 4,300 $10,750 2,200,000 16,550 1,500 Instructions 1. Assemble the desired data, using the following column headings: Bad Debt Expense Increase (Decrease) in Amount of Expense Balance of Allowance Account, End of Year Expense Actually Reported Expense Based on Estimate Year (Continued) Experience during the first four years of operations indicated that the receiv- ables either were 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 experi- ence with uncollectible accounts originating during the first two years? Explain. 2.
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: r, Year of Origin of Accounts Receivable Written Off as Uncollectible Uncollectible Accounts Written Off Sales 2nd 3rd 4th Year 1st $ 900,000 $ 4,500 $4,500 1st 2nd $6,600 1,250,000 9,600 3,000 3rd 1,500,000 $8,100 12,800 1,000 3,700 4th 4,300 $10,750 2,200,000 16,550 1,500 Instructions 1. Assemble the desired data, using the following column headings: Bad Debt Expense Increase (Decrease) in Amount of Expense Balance of Allowance Account, End of Year Expense Actually Reported Expense Based on Estimate Year (Continued) Experience during the first four years of operations indicated that the receiv- ables either were 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 experi- ence with uncollectible accounts originating during the first two years? Explain. 2.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text: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:
r,
Year of Origin of
Accounts Receivable Written
Off as Uncollectible
Uncollectible Accounts
Written Off
Sales
2nd
3rd
4th
Year
1st
$ 900,000
$ 4,500
$4,500
1st
2nd
$6,600
1,250,000
9,600
3,000
3rd
1,500,000
$8,100
12,800
1,000
3,700
4th
4,300 $10,750
2,200,000
16,550
1,500
Instructions
1. Assemble the desired data, using the following column headings:
Bad Debt Expense
Increase (Decrease)
in Amount
of Expense
Balance of
Allowance Account,
End of Year
Expense
Actually
Reported
Expense
Based on
Estimate
Year
(Continued)
Transcribed Image Text:Experience during the first four years of operations indicated that the receiv-
ables either were 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 experi-
ence with uncollectible accounts originating during the first two years? Explain.
2.
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