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Call Systems Company, a telephone service and supply company, has just completed its fourth year of operations. The direct write-off method of recording 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 allowance method. Information is requested as to the effect that an annual provision of 1% 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 Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts: r, Year of Origin of Accounts Receivable Written Off as Uncollectible Uncollectible Accounts Written Off Sales 2nd 3rd 4th Year 1st $ 900,000 $ 4,500 $4,500 1st 2nd $6,600 1,250,000 9,600 3,000 3rd 1,500,000 $8,100 12,800 1,000 3,700 4th 4,300 $10,750 2,200,000 16,550 1,500 Instructions 1. Assemble the desired data, using the following column headings: Bad Debt Expense Increase (Decrease) in Amount of Expense Balance of Allowance Account, End of Year Expense Actually Reported Expense Based on Estimate Year (Continued) Experience during the first four years of operations indicated that the receiv- ables either were collected within two years or had to be written off as uncollectible. Does the estimate of 1% of sales appear to be reasonably close to the actual experi- ence with uncollectible accounts originating during the first two years? Explain. 2.

Call Systems Company, a telephone service and supply company, has just completed its fourth year of operations. The direct write-off method of recording 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 allowance method. Information is requested as to the effect that an annual provision of 1% 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 Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts: r, Year of Origin of Accounts Receivable Written Off as Uncollectible Uncollectible Accounts Written Off Sales 2nd 3rd 4th Year 1st $ 900,000 $ 4,500 $4,500 1st 2nd $6,600 1,250,000 9,600 3,000 3rd 1,500,000 $8,100 12,800 1,000 3,700 4th 4,300 $10,750 2,200,000 16,550 1,500 Instructions 1. Assemble the desired data, using the following column headings: Bad Debt Expense Increase (Decrease) in Amount of Expense Balance of Allowance Account, End of Year Expense Actually Reported Expense Based on Estimate Year (Continued) Experience during the first four years of operations indicated that the receiv- ables either were collected within two years or had to be written off as uncollectible. Does the estimate of 1% of sales appear to be reasonably close to the actual experi- ence with uncollectible accounts originating during the first two years? Explain. 2.

College Accounting, Chapters 1-27
College Accounting, Chapters 1-27
23rd Edition
ISBN:9781337794756
Author:HEINTZ, James A.
Publisher:HEINTZ, James A.
Chapter16: Accounting For Accounts Receivable
Section: Chapter Questions
Problem 3CP: At the end of 20-3, Martel Co. had 410,000 in Accounts Receivable and a credit balance of 300 in...
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Call Systems Company, a telephone service and supply company, has just completed its fourth year of operations. The direct write-off method of recording 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 allowance method. Information is requested as to the effect that an annual provision of 1% 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 Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts: r, Year of Origin of Accounts Receivable Written Off as Uncollectible Uncollectible Accounts Written Off Sales 2nd 3rd 4th Year 1st $ 900,000 $ 4,500 $4,500 1st 2nd $6,600 1,250,000 9,600 3,000 3rd 1,500,000 $8,100 12,800 1,000 3,700 4th 4,300 $10,750 2,200,000 16,550 1,500 Instructions 1. Assemble the desired data, using the following column headings: Bad Debt Expense Increase (Decrease) in Amount of Expense Balance of Allowance Account, End of Year Expense Actually Reported Expense Based on Estimate Year (Continued)
Transcribed Image Text:Call Systems Company, a telephone service and supply company, has just completed its fourth year of operations. The direct write-off method of recording 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 allowance method. Information is requested as to the effect that an annual provision of 1% 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 Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts: r, Year of Origin of Accounts Receivable Written Off as Uncollectible Uncollectible Accounts Written Off Sales 2nd 3rd 4th Year 1st $ 900,000 $ 4,500 $4,500 1st 2nd $6,600 1,250,000 9,600 3,000 3rd 1,500,000 $8,100 12,800 1,000 3,700 4th 4,300 $10,750 2,200,000 16,550 1,500 Instructions 1. Assemble the desired data, using the following column headings: Bad Debt Expense Increase (Decrease) in Amount of Expense Balance of Allowance Account, End of Year Expense Actually Reported Expense Based on Estimate Year (Continued)
Experience during the first four years of operations indicated that the receiv- ables either were collected within two years or had to be written off as uncollectible. Does the estimate of 1% of sales appear to be reasonably close to the actual experi- ence with uncollectible accounts originating during the first two years? Explain. 2.
Transcribed Image Text:Experience during the first four years of operations indicated that the receiv- ables either were collected within two years or had to be written off as uncollectible. Does the estimate of 1% of sales appear to be reasonably close to the actual experi- ence with uncollectible accounts originating during the first two years? Explain. 2.
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