Question

The Dubious Company operates in an industry where all sales are made on account. The company has experienced bad debt losses of 1.40% 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	$	373,000			$	379,000			$	378,000
Bad Debt Expense		Unknown				Unknown				Unknown
Other Expenses		337,000				337,000				337,750
Net Income		Unknown				Unknown				Unknown

Required:

1. Calculate Bad Debt Expense and net income for each of the three years, assuming uncollectible accounts are estimated as 1.40% of sales.
2. Assume that the company changes its estimate of uncollectible credit sales to 1.40% in Year 1, 2.40% in Year 2 and 1.90% in Year 3. Calculate the Bad Debt Expense and net income for each of the three years under this alternative scenario.

Answer 1

Answer
a.
	year 1	year 2	year 3
sales revenue	$     3,73,000	$     3,79,000	$     3,78,000
bad debt expense (1.40%*373,000 ,379,000 , 378,000)	$          5,222	$          5,306	$          5,292
other expense	$     3,37,000	$     3,37,000	$     3,37,750
net income	$        30,778	$        36,694	$        34,958
b.
	year1	year 2	year 3
sales revenue	$     3,73,000	$     3,79,000	$     3,78,000
bad debt expense (1.40%*373,000...2.40%*379,000...1.90%*378,000)	$          5,222	$          9,096	$          7,182
other expense	$     3,37,000	$     3,37,000	$     3,37,750
net income	$        30,778	$        32,904	$        33,068
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