TLC Inc. manufactures large-scale, high-performance computer
systems. In a recent annual report, the balance sheet included the
following information ($ in millions):
2015 | 2014 | ||||
Current assets: | |||||
Receivables, less allowances of $306 in 2015 and $342 in 2014 |
$ | 5,777 | $ | 6,213 | |
In addition, the income statement reported sales revenue of $42,812
($ in millions) 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 $43,737 ($ in
millions). There were no recoveries of accounts receivable
previously written off.
Required:
1. Compute the following ($ in millions):
2. Suppose that TLC had used the direct write-off method to account for bad debts. Compute the following ($ in millions):
ANSWER
1 | ||||
a. | Amount of bad debts written off: | |||
$ | $ | |||
Ending balance of accounts receivable (Gross) | (5,777+306 ) | 6,083 | ||
Cash collected from customers | 43,737 | |||
Total | 49,820 | |||
Less: | ||||
Beginning balance of accounts receivable (Gross) | (6,213+342) | 6,555 | ||
Credit Sales | 42,812 | 49,367 | ||
Baddebts written-off | 453 | |||
b. | Amount of baddebt expense for 2015: | |||
$ | ||||
Ending balance of allowances | 306 | |||
Baddebts written-off | 453 | |||
Total | 759 | |||
Less: Beginning balance of allowance | 342 | |||
Baddebt expense for 2015 | 417 | |||
c. | In income statement approach, baddebt is computed as a % of sales | |||
Baddebt expense=$ 417 | ||||
Sales=$ 42,812 | ||||
% of sales=417/42,812=0.0097=0.97 % | ||||
2 | ||||
a. | Accounts receivable balance for 2015: | |||
$ | $ | |||
Beginning balance of accounts receivable (Gross) | (6,213 +342) | 6,555 | ||
Add: Credit sales | 42,812 | |||
49,367 | ||||
Less: | ||||
Cash collected from customers | 43,737 | |||
Baddebts written-off during 2015 | 453 | 44,190 | ||
Accounts receivable balance for 2015 | 5,177 | |||
b. | Baddebt expense=Baddebts written-off during 2015=$ 453 |
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TLC Inc. manufactures large-scale, high-performance computer systems. In a recent annual report, the balance sheet included...
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