Question

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 $294 in 2015 and $327 in 2014 $ 5,677 $ 6,113 In addition, the income statement reported sales revenue of $41,806 ($ 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 $42,737 ($ In millions). There were no recoveries of accounts receivable previously written off. Required: 1. Compute the following ($ In millions): a. The amount of bad debts written off by TLC during 2015. b. The amount of bad debt expense that TLC Included In Its Income statement for 2015 c. The approximate percentage that TLC used to estimate bad debts for 2015, assuming that it used the income statement approach. 2. Suppose that TLC had used the direct write-off method to account for bad debts. Compute the following ($ In millions): a. The accounts receivable Information that would be included in the 2015 year-end balance sheet. b. The amount of bad debt expense that TLC would include In Its 2015 Income statement. Complete this question by entering your answers in the tabs below. Reg 1 Req 2A Reg 2B Calculate the amount of bad debts written off by TLC during 2015, bad debt expense that TLC would include in its income statement for 2015 and the approximate percentage that TLC used to estimate debts for 2015, assuming that it uses the income statement approach. (Enter your answers in millions, Loss amounts should be indicated by a minus sign and round your percentage answer to 1 decimal place.) Show less a. b. Bad debts written off Bad debt expense Approximate percentage S $ 462 (429) 1.0 % Req 1 Req 2A >

Answer 1

1
a.	Amount of baddebts written off:
						$	$
	Ending balance of accounts receivable (Gross)				(5677+294)		5971
	Cash collected from customers						42737
	Total						48708
	Less:
	Beginning balance of accounts receivable (Gross)				(6113+327)	6440
	Credit Sales					41806	48246
	Baddebts written-off						462
b.	Amount of baddebt expense for 2015:
						$
	Ending balance of allowances					294
	Baddebts written-off					462
	Total					756
	Less: Beginning balance of allowance					327
	Baddebt expense for 2015					429
c.	In income statement approach, baddebt is computed as a % of sales
	Baddebt expense=$ 429
	Sales=$ 41806
	% of sales=429/41806=0.0103=1.03%
2
a.	Accounts receivable balance for 2015:
						$	$
	Beginning balance of accounts receivable (Gross)				(6113+327)		6440
	Add: Credit sales						41806
							48246
	Less:
	Cash collected from customers					42737
	Baddebts written-off during 2015					462	43199
	Accounts receivable balance for 2015						5047
b.	Baddebt expense=Baddebts written-off during 2015=$ 462