The question is incomplete. The complete question is :
The Dubious Company operates in an industry where all sales are made on account. The company has experienced bad debt losses of 1.60% 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 $ 383,000 $ 389,000 $ 388,000 Bad Debt Expense Unknown Unknown Unknown Other Expenses 330,000 340,000 337,750 Net Income Unknown Unknown Unknown
Required: a. Calculate Bad Debt Expense and net income for each of the three years, assuming uncollectible accounts are estimated as 1.60% of sales.
Assume that the company changes its estimate of uncollectible credit sales to 1.60% in year 1, 2.60% in year 2 and 2.10% in year 3.
Calculate the Bad Debt Expense and net income for each of the three years under this alternative scenario.
Solution :
Scenario 1
Particulars Year 1 Year 2 Year 3
Sales revenue $ 3,83,000 $ 3,89,000 $ 3,88,000
Less : Bad debt $ -6,128 $ -6,224 $ -6,208
expenses (383000 x 1.6%) (389000 x 1.6%) (388000 x 1.6%)
Less: other $ -3,30,000 $ -3,40,000 $ 3,37,750
expenses $ 46,872 $ 42,776 $ 44,042
Scenario 2
Particulars Year 1 Year 2 Year 3
Sales revenue $ 3,83,000 $ 3,89,000 $ 3,88,000
Less : Bad debt $ -6,128 $ -10,114 $ -8,148
expenses (383000 x 1.6%) (389000 x 2.6%) (388000 x 2.1%)
Less: other $ -3,30,000 $ -3,40,000 $ 3,37,750
expenses $ 46,872 $ 38,886 $ 42,102
