Question

Call Systems Company, a telephone service and supply company, 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 company is considering changing to the allowance method. Information is requested as to the effect that an annual provision of 1% 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	Sales	Uncollectible Accounts Written Off	Years of Origin of Accounts Receivable
			Written Off as Uncollectible
			(1)	(2)	(3)	(4)
1	$ 845,600	$ 4,440	$4,440
2	1,180,300	9,200	2,910	$6,290
3	1,468,600	12,540	740	3,550	$8,250
4	2,156,400	16,290		1,420	4,530	$10,340

1.

Assemble the desired data to prepare a schedule of bad debt expense. Enter all amounts as positive numbers.

2.

Experience during the first four years of operations indicated that the receivables were either collected within two years or had to be written off as uncollectible. Does the estimate of 1% of sales appear to be reasonably close to the actual experience with uncollectible accounts originating during the first two years? 1. Assemble the desired data to prepare a schedule of bad debt expense. Enter all amounts as positive numbers. Call Systems Company Schedule of Bad Debt Expense 1 Year Expense Actually Reported Expense Based on Estimate Increase (Decrease) in Amount of Expense Balance of Allowance Account, End of Year 2 1 3 2 4 3 5 4

Answer 1

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Schedule of Bad Debt Expense
Year	Expense Actually Reported	Based on Estimate (1% of Sale)	Increase/(Decrease)	Balance of Allowance
1	$                                              4,440	$                                                  8,456	$                            4,016	$                              4,016
2	$                                              9,200	$                                               11,803	$                            2,603	$                              6,619
3	$                                           12,540	$                                               14,686	$                            2,146	$                              8,765
4	$                                           16,290	$                                               21,564	$                            5,274	$                            14,039
Part 2
	Yes,
Year 1	Total write off in first year is	$                                                  8,090	4440+2910+740
	Based on Estimate	$                                                  8,456
Year 2	Total write off in first year is	$                                               11,260	6290+3550+1420
	Based on Estimate	$                                               11,803