Year of Origin of Accounts Receivable Written Off as Uncollectible Uncollectible Accounts Written Off Year Sales 2nd 3rd 4th 1st 1st $12,500,000 $18,000 $18,000 $21,200 2nd 14,800,000 9,000 30,200 3rd $27,000 18,000,000 39,900 3,600 9,300 4th $35,000 24,000,000 52,600 5,100 12,500 Instructions 1. Assemble the desired data, using the following column headings: Bad Debt Expense Increase (Decrease) in Amount of Expense Expense Actually Reported Expense Based on Balance of Allowance Account, End of Year Year Estimate Experience during the first four years of operations indicated that the receivables either were collected within two years or had to be written off as uncol- lectible. Does the estimate of ¼% of sales appear to be reasonably close to the actual experience with uncollectible accounts originating during the first two years? Explain. 2.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Digital Depot Company, which operates a chain of 40 electronics supply stores, 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 firm is considering changing to the allowance method. Information is requested as to the effect that an annual provision
of ¼% 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:

Year of Origin of
Accounts Receivable Written
Off as Uncollectible
Uncollectible Accounts
Written Off
Year
Sales
2nd
3rd
4th
1st
1st
$12,500,000
$18,000
$18,000
$21,200
2nd
14,800,000
9,000
30,200
3rd
$27,000
18,000,000
39,900
3,600
9,300
4th
$35,000
24,000,000
52,600
5,100
12,500
Instructions
1. Assemble the desired data, using the following column headings:
Bad Debt Expense
Increase
(Decrease)
in Amount
of Expense
Expense
Actually
Reported
Expense
Based on
Balance of
Allowance Account,
End of Year
Year
Estimate
Experience during the first four years of operations indicated that the
receivables either were collected within two years or had to be written off as uncol-
lectible. Does the estimate of ¼% of sales appear to be reasonably close to the actual
experience with uncollectible accounts originating during the first two years? Explain.
2.
Transcribed Image Text:Year of Origin of Accounts Receivable Written Off as Uncollectible Uncollectible Accounts Written Off Year Sales 2nd 3rd 4th 1st 1st $12,500,000 $18,000 $18,000 $21,200 2nd 14,800,000 9,000 30,200 3rd $27,000 18,000,000 39,900 3,600 9,300 4th $35,000 24,000,000 52,600 5,100 12,500 Instructions 1. Assemble the desired data, using the following column headings: Bad Debt Expense Increase (Decrease) in Amount of Expense Expense Actually Reported Expense Based on Balance of Allowance Account, End of Year Year Estimate Experience during the first four years of operations indicated that the receivables either were collected within two years or had to be written off as uncol- lectible. Does the estimate of ¼% of sales appear to be reasonably close to the actual experience with uncollectible accounts originating during the first two years? Explain. 2.
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