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 $318 in 2015 and $357 in 2014	$ 5,877	$ 6,313

In addition, the income statement reported sales revenue of $43,818 ($ 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 $44,737 ($ in millions). There were no recoveries of accounts receivable previously written off.

Required:
1. Compute the following ($ in millions):

1. The net amount of bad debts written off or reinstated by TLC during 2015.
2. The amount of bad debt expense or reduction of bad debt expense that TLC included in its income statement for 2015.

2. Suppose that TLC had used the direct write-off method to account for bad debts. Compute the following ($ in millions):

1. The accounts receivable information that would be included in the 2015 year-end balance sheet.
2. The amount of bad debt expense or reduction of bad debt expense that TLC included in its income statement for 2015.

Answer 1

Solution-

1. a) Amount of bad debts written off:-

Particulars	($ in millions)	($ in millions)
Ending balance of accounts receivable (Gross) [5877+318]		6195
Cash collected from customers		44737
Total		50932
Less :
Beginning balance of accounts receivable (Gross) [6313+357]	6670
Credit sales	43818	50488
Bad debts written-off		444

b) Amount of bad debt expense for 2015 :-

Particulars	($ in millions)
Ending balance of allowances	318
Bad debts written-off	444
Total	762
Less : Beginning balance of allowance	357
Bad debt expense for 2015	405

2. a) Accounts receivable balance for 2015 :-

Particulars	($ in millions)	($ in millions)
Beginning balance of account receivable [6313+357]		6670
Add : Credit sales		43818
		50488
Less :
Cash collected from customers	44737
Bad debts written-off during 2015	444	45181
Accounts receivable balance for 2015		5307

b) Bad debt expense = Baddebts written-off during 2015 = $444 millions