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.

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