The Dubious Company operates in an industry where all sales are made on account. The company has experienced bad debt losses of 1.90% of credit sales in prior periods. Presented below is the company's forecast of sales and expenses over the next three years. Year 2 $ 375,000 Year 3 $ 374,000 Unknown 335,750 Unknown 333,000 Unknown Unknown Sales Revenue Bad Debt Expense Other Expenses Net Income Year 1 $ 369,000 Unknown 340,000 Unknown Required: a. Calculate Bad Debt Expense and net income for each of the three years, assuming uncollectible accounts are estimated as 1.90% of sales. b. Assume that the company changes its estimate of uncollectible credit sales to 1.90% in Year 1, 2.90% in Year 2 and 2.40% in Year 3. Calculate the Bad Debt Expense and net income for each of the three years under this alternative scenario.
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
![The Dubious Company operates in an industry where all sales are made on account. The company has experienced bad debt losses
of 1.90% of credit sales in prior periods.
Presented below is the company's forecast of sales and expenses over the next three years.
Year 3
$ 374,000
Year 2
$ 375,000
Unknown
333,000
Unknown
335,750
Unknown
Unknown
Sales Revenue
Bad Debt Expense
Other Expenses
Net Income
Year 1
$ 369,000
Unknown
340,000
Unknown
Required:
a. Calculate Bad Debt Expense and net income for each of the three years, assuming uncollectible accounts are estimated as 1.90% of
sales.
b. Assume that the company changes its estimate of uncollectible credit sales to 1.90% in Year 1, 2.90% in Year 2 and 2.40% in Year 3.
Calculate the Bad Debt Expense and net income for each of the three years under this alternative scenario.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F028fe221-21b3-4897-97fb-7dcea6a947aa%2F4d548121-345b-4433-bb8c-fc10dc6a2aa9%2F84527hr_processed.jpeg&w=3840&q=75)
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