Calculate Bad Debt Expense and net income for each of the three years, assuming uncollectible accounts are estimated as 1.60% of sales. Assume that the company changes its estimate of uncollectible credit sales to 1.60% in Year 1, 2.60% in Year 2 and 2.10% in Year 3. Calculate the Bad Debt Expense and net income for each of the three years under this alternative scenario.

The question is incomplete. The complete question is :

The Dubious Company operates in an industry where all sales are made on account. The company has experienced bad debt losses of 1.60% 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 $ 383,000 $ 389,000 $ 388,000 Bad Debt Expense Unknown Unknown Unknown Other Expenses 330,000 340,000 337,750 Net Income Unknown Unknown Unknown

Required: a. Calculate Bad Debt Expense and net income for each of the three years, assuming uncollectible accounts are estimated as 1.60% of sales.

Assume that the company changes its estimate of uncollectible credit sales to 1.60% in year 1, 2.60% in year 2 and 2.10% in year 3.

Calculate the Bad Debt Expense and net income for each of the three years under this alternative scenario.

Solution :

Scenario 1

Particulars                      Year 1                 Year 2                Year 3

Sales revenue          $ 3,83,000         $ 3,89,000         $ 3,88,000

Less : Bad debt         $ -6,128              $ -6,224              $ -6,208

expenses             (383000 x 1.6%)   (389000 x 1.6%)  (388000 x 1.6%)

Less: other              $ -3,30,000         $ -3,40,000         $ 3,37,750

expenses                $ 46,872              $ 42,776               $ 44,042

Scenario 2

Particulars                      Year 1                 Year 2                Year 3

Sales revenue          $ 3,83,000         $ 3,89,000         $ 3,88,000

Less : Bad debt         $ -6,128              $ -10,114              $ -8,148

expenses             (383000 x 1.6%)   (389000 x 2.6%)  (388000 x 2.1%)

Less: other              $ -3,30,000         $ -3,40,000         $ 3,37,750

expenses                $ 46,872              $ 38,886               $ 42,102

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