Losses from Uncollectible Year of Sales Credit Sales Accounts* 2016 $197,000 202,000 212,000 273,000 $884,000 $12,608 13,299 13,285 22,274 $61,466 2017 2018 2019 Total * Losses from uncollectible accounts are the actual losses related to sales of that year (rather than write-offs of that year).
Losses from Uncollectible Year of Sales Credit Sales Accounts* 2016 $197,000 202,000 212,000 273,000 $884,000 $12,608 13,299 13,285 22,274 $61,466 2017 2018 2019 Total * Losses from uncollectible accounts are the actual losses related to sales of that year (rather than write-offs of that year).
Losses from Uncollectible Year of Sales Credit Sales Accounts* 2016 $197,000 202,000 212,000 273,000 $884,000 $12,608 13,299 13,285 22,274 $61,466 2017 2018 2019 Total * Losses from uncollectible accounts are the actual losses related to sales of that year (rather than write-offs of that year).
The Glass House, a glass and china store, sells nearly half its merchandise on credit. During the past 4 years, the following data were developed for credit sales and losses from uncollectible accounts: Required: 1. Calculate the loss rate for each year from 2016 through 2018. (Note: Round answers to three decimal places.) 2. Determine whether there appears to be a significant change in the loss rate over time. 3. CONCEPTUAL CONNECTION If credit sales for 2020 are $400,000, determine what loss rate you would recommend to estimate bad debts. (Note: Round answers to three decimal places.) 4. Using the rate you recommend, record bad debt expense for 2020. 5. CONCEPTUAL CONNECTION Assume that the increase in The Glass House’s sales in 2020 was largely due to granting credit to customers who would have been denied credit in previous years. How would this change your answer to Requirement 4? Describe a legitimate business reason why The Glass House would adopt more lenient credit terms. 6. CONCEPTUAL CONNECTION Using the data from 2016 through 2019, estimate the increase in income from operations in total for those 4 years assuming (a) the average gross margin is 25% and (b) 50% of the sales would have been lost if no credit was granted.
Transcribed Image Text:Losses from
Uncollectible
Year of Sales
Credit Sales
Accounts*
2016
$197,000
202,000
212,000
273,000
$884,000
$12,608
13,299
13,285
22,274
$61,466
2017
2018
2019
Total
* Losses from uncollectible accounts are the actual losses related to sales
of that year (rather than write-offs of that year).
Definition Definition Receivable amount that a company is owed, but did not receive, and which may not be receivable in future.
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