Question

E5-45. Uncollectible Accounts and Reporting Receivables over Multiple Periods

Weiss Company, which has been in business for three years, makes all of its sales on credit and does not offer cash discounts. Its credit sales, customer collections, and write-offs of uncollectible accounts for its first three years follow.

Year	Sales	Collections	Accounts Written Off
2014	$733,00	$716,000	$5,300
2015	$857,000	$842,000	$5,800
2016	$945,000	$928,000	$6,500

A) Weiss recognizes bad debts expense as 1% of sales. (Hint: This means the allowance account is increased by 1% of credit sales regardless of any write-offs and unused balances.) What does Weiss' 2013 balance sheet report for accounts receivable and the allowance for uncollectible accounts? What total amount of bad debts expense appears on Weiss' income statement for each of the three years?

B) Comment on the appropriateness of the 1% rate used to provide for bad debts based on your analysis in part a.

(I understand one comment said that there is not enough information given.. however.. this is all the information that is given)

Answer 1

Bad debts expense
We can consider corrected sales value of 2014 = 733,000.
Year	Sales	Bad debt expense (1% of sales )	Bad debts expense appears on Weiss' income statement
2014	733000	7330	7330
2015	857000	8570	8570
2016	945000	9450	9450
Account receivable (gross) balance
Year	Beginning balance	Sales	Less: collections	Less: Accounts Written Off	Ending account receivable balance (gross)
2014	0	733000	(716,000)	(5,300)	11700
2015	11700	857000	(842,000)	(5,800)	20900
2016	20900	945000	(928,000)	(6,500)	31400
Allowance for doubtful debts
Year	Beginning balance	Add: bad debt expense	Less: Accounts Written Off	Ending balance of allowance for doubtful debts
2014	0	7330	(5,300)	2030
2015	2030	8570	(5,800)	4800
2016	4800	9450	(6,500)	7750
Account receivable (net) balance
Year	Ending account receivable balance (gross)	Ending balance of allowance for doubtful debts	Account receivable (net) balance appear in balance sheet
2014	11700	(2,030)	9670
2015	20900	(4,800)	16100
2016	31400	(7,750)	23650
Answer 2
Year	Sales	Accounts Written Off	Account write off on percentage of sales (account write off / sales)
2014	733000	5,300	0.72%
2015	857000	5,800	0.68%
2016	945000	6,500	0.69%
	2535000	17600	0.69%
1% rate used to provide for bad debts is higher compared to past data. It should advisable company revised such rate at 0.69% of sales for record bad debt expense.