In its 1997 annual report, Eastman Kodak Company reported the following information relating to accounts receivable (amounts in millions of dollars):
December 31 Receivables (in millions) 1997 1996 Trade receivables $1,930 $2,340 Miscellaneous receivables 341 398 Total (net of allowances of $112 and $90) $2,271 $2,738 The company sells to customers in a variety of industries, markets, and geographies around the world. Adequate provisions have been recorded for uncollectible receivables. There are no significant concentrations of credit risk.
Required: (1) How can you determine if the December 31, 1997 allowance for bad debts is reasonable? (Hint: No calculations are required.)
(2) Sales in 1997 were $14,538 million. Assume that all sales were made on credit and that the bad debts expense for 1997 was $95 million. Compute the amount of bad debts written off in 1997 and the cash collected from sales in 1997. TYK-1