Question

Required financial statements (for questions 1 and 2): Verizon Communications (FYE: December 31, 2017)

1.       The allowance for doubtful account balance made up what percentage of Verizon’s accounts receivable (gross) on the December 31,         2017 balance sheet?

The estimated percentage (in 1 above) increased to 5%:             

a)      What would be the new allowance for doubtful accounts and accounts receivable (net of allowance) on the December 31, 2017 balance sheet?

b)      What impact would the change in percentage have on bad debt expense? Provide the amount of the change and indicate    whether it would be an             increase or decrease.

Consolidated Balance Sheets - USD ($) $ in Millions	Dec. 31, 2017	Dec. 31, 2016
Current assets
Cash and cash equivalents	$ 2,079	$ 2,880
Accounts receivable, net of allowances of $939 and $845	23,493	17,513
Inventories	1,034	1,202
Assets held for sale	0	882
Prepaid expenses and other	3,307	3,918
Total current assets	29,913	26,395

Answer 1

Answer 1
The percentage of allowance for doubtful account balance to accounts receivable (gross) as on Dec.31,2017
= [allowance for doubtful account balance / accounts receivable (gross)] * 100 = $939 / [$23493 + $939] = 3.84%
Answer 1a
The estimated percentage (in 1 above) increased to 5%.
The new allowance for doubtful accounts as of Dec.31,2017 = accounts receivable (gross) * 5% = $24432 * 5% = $1,222
Accounts receivable (net of allowance) on the December 31, 2017 = $24432 - $1222 = $23,210
Answer 1b
Amount of change in bad debt expense = $1222 - $939 = $283 Increase