Question

Amdahl Corporation manufactures large-scale, high performance computer systems. In a recent annual report, the balance sheet included the following information (dollars in thousands): Current Year Previous Year Current assets: Receivables, net of allowances of $5,742 and $7,360 in the previous year $ 511,944 $ 588,340 In addition, the income statement reported sales revenue of $2,231,755 ($ in thousands) for the current year. All sales are made on a credit basis. The statement of cash flows indicates that cash collected from customers during the current year was $2,300,065 ($ in thousands). There were no recoveries of accounts receivable previously written off. Required: 1. Compute the following (dollar amounts in thousands): a. The amount of uncollectibles written off by Amdahl during the current year. b. The amount of bad debt expense that Amdahl would include in its income statement for the current year. c. The approximate percentage that Amdahl used to estimate uncollectibles for the current year, assuming that it uses the income statement approach. 2. Suppose that Amdahl had used the direct write-off method to account for uncollectibles. Compute the following (dollars in thousands): a. The accounts receivable information that would be included in the year-end balance sheet. b. The amount of bad debt expense that Amdahl would include in its income statement for the current year.

Answer 1

SOLUTION

1A.

Particulars	Amount ($)
Balance,beginning of year (588,340+7,360)	595,700
Add: Credit sales	2,231,755
Less: Cash collections	(2,300,065)
Less: Balance, end of year (511,944+5,742)	(517,686)
Accounts receivable written off during year	9,704

1B.

Particulars	Amount ($)
Beginning balance	7,360
Less: Write offs	(9,704)
Less: Year end balance	(5,742)
Bad debt expense for the current year	8,086

1C. 8,086 / 2,231,755 = 0.36%

2A.

	Current year ($)	Previous year ($)
Current assets:
Receivables	517,686	595,700

2B. Bad debt expense would be equal to actual receivables written off-

= $9,704