Digital Depot Company, which operates a chain of 40 electronics supply stores, 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 firm is considering changing to the allowance method. Information is requested as to the effect that an annual provision of ¼% 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: Year of Origin of
Accounts Receivable Written
Off as Uncollectible
Uncollectible Accounts
Year Sales Written Off 1st 2nd 3rd 4th
1st $12,500,000 $18,000 $18,000
2nd 14,800,000 9,000 30,200 $21,200
3rd 18,000,000 39,900 3,600 9,300 $27,000
4th 24,000,000 52,600 5,100 12,500 $35,000
Instructions
Assemble the desired data, using the following column headings:
Bad Debt Expense
Expense Actually Expense Based Increase decrease Balance of
Reported on Estimate in amount of Allowance Account,
expense End of Year