Question

1. Call Systems Company, a telephone service and supply company, has just completed its fourth year of operations. The The method of accounting for uncollectible accounts that recognizes the expense only when accounts are judged to be worthless.direct write-off method of recording The operating expense incurred because of the failure to collect receivables.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 The method of accounting for uncollectible accounts that provides an expense for uncollectible receivables in advance of their write-off.allowance method. Information is requested as to the effect that an annual provision of ½% 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 The contra asset account for accounts receivable.Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts:

   					Year of Origin of Accounts Receivable Written Off as Uncollectible
   Year	Sales		Uncollectible Accounts Written Off		1st		2nd		3rd		4th
   1st	$1,270,000		$1,150		$1,150
   2nd	1,630,000		2,750		1,300		$1,450
   3rd	2,890,000		12,550		3,650		2,900		$6,000
   4th	3,180,000		15,600				3,600		5,300		$6,700

   Required:

   1. Assemble the desired data. Enter a decrease in the amount of expense as a negative number and all other amounts as positive numbers.

   Call Systems Company
   Bad Debt Expense
   Year	Expense Actually Reported	Expense Based on Estimate	Increase (Decrease) in Amount of Expense	Balance of Allowance Account, End of Year
   1st	$	$	$	$
   2nd
   3rd
   4th

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   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 ½% of sales appear to be reasonably close to the actual experience with uncollectible accounts originating during the first two years?
   

   • Yes
   • No

Answer 1

Answer to Requirement 1:

Answer to Requirement 2:

Yes.

The actual write-off during the first two years are $6,100 ($1,150 + $1,300 + $3,650) and $7,950 ($1,450 + $2,900 + $3,600), respectively and expected write-offs for the same period are $6,350 and $8,150.

Therefore, the actual write-offs during the first two years are reasonable close to expected write-off estimated on the basis of 0.50% of sales.