Question

The Dubious Company operates in an industry where all sales are made on account. The company has experienced bad debt losses of 1% 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	$	368,000			$	374,000			$	373,000
Bad Debt Expense		Unknown				Unknown				Unknown
Other Expenses		340,000				342,000				342,750
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 1.0% of sales.
2. Assume that the company changes its estimate of uncollectible credit sales to 1.0% in Year 1, 2.0% in Year 2 and 1.5% in Year 3. Calculate the Bad Debt Expense and net income for each of the three years under this alternative scenario.

Answer 1

a) Calculate following

Presented below is the company's forecast of sales and expenses over the next three years.

	Year 1				Year 2				Year 3
Sales Revenue	$	368,000			$	374,000			$	373,000
Bad Debt Expense		3680				3740				3730
Other Expenses		340,000				342,000				342,750
Net Income		24320				28260				26520

b) Presented below is the company's forecast of sales and expenses over the next three years.

	Year 1				Year 2				Year 3
Sales Revenue	$	368,000			$	374,000			$	373,000
Bad Debt Expense		3680				7480				5595
Other Expenses		340,000				342,000				342,750
Net Income		24320				24520				24655