The Dubious Company operates in an industry where all sales are made on account. The company has experienced bad debt losses of 1.70% of credit sales in prior periods. Presented below is the company's forecast of sales and expenses over the next three years. Year 1 Year 2 Year 3 Sales Revenue $ 375,000 $ 381,000 $ 380,000 Bad Debt Expense Unknown Unknown Unknown Other Expenses 334,000 337,000 334,750 Net Income Unknown Unknown Unknown Required: Calculate Bad Debt Expense and net income for each of the three years, assuming uncollectible accounts are estimated as 1.70% of sales. Assume that the company changes its estimate of uncollectible credit sales to 1.70% in Year 1, 2.70% in Year 2 and 2.20% 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
Presented below is the company's
| Year 1 | Year 2 | Year 3 | ||||||||||
| Sales Revenue | $ | 375,000 | $ | 381,000 | $ | 380,000 | ||||||
| Bad Debt Expense | Unknown | Unknown | Unknown | |||||||||
| Other Expenses | 334,000 | 337,000 | 334,750 | |||||||||
| Net Income | Unknown | Unknown | Unknown | |||||||||
Required:
- Calculate Bad Debt Expense and net income for each of the three years, assuming uncollectible accounts are estimated as 1.70% of sales.
- Assume that the company changes its estimate of uncollectible credit sales to 1.70% in Year 1, 2.70% in Year 2 and 2.20% in Year 3. Calculate the Bad Debt Expense and net income for each of the three years under this alternative scenario.
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