The Dubious Company Operates in an Industry Where All Sales

Essay

The Dubious Company operates in an industry where all sales are made on account.Historically,Dubious has experienced a steady 1.0% of credit sales being uncollectible.Presented below is the company's forecast of sales and expenses over the next three years.
Using this information:
a.Calculate bad debt expense and net income for each of three years,assuming uncollectible accounts are estimated as 1.0% of sales.
b.Comment on the trend in net income changes from Year 1 to Year 2 and from Year 2 to Year 3.
c.Suppose 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.
d.Comment on the trend in net income changes determined in requirement c from Year 1 to Year 2 and Year 2 to Year 3.
e.Under which scenario (a or c)do you feel most confident when predicting the net income likely to be earned in Year 4? What contributes to this feeling?
$$\begin{array}{l}\begin{array} { l c c c } & \underline { \text { Year } 1 } & \underline { 2 } & \\\text { Sales Revenue } & \$ 368,000 & \$ 374,000 & \$ 373,000 \\\text { Bad Debt Expense } & & & \\\text { Other Expenses } & \underline { 340,000 } & \underline { 342,000 } & \underline { 342,750 } \\\end{array}\\\text { Net Income }\end{array}$$