1. Year 4: Balance of allowance account, end of year, $15,050 PR 8-3A Compare two methods of accounting for uncollectible receivables Obj. 3, 4,5 Call Systems Company, a telephone service and supply company, has just completed its fourth year of operations. The direct write-off method of recording bad debt expense has been used during the entire period. Because of substantial increases in sales volume and the amount of uncollectible accounts, the company is considering changing to the allowance method. Information is requested accounts the company is consi as to the effect that an annual provision of 1% of sales would have had on the amount of bad debt expense reported for each of the past four years. It is also considered desirable to know what the balance of Allowance for Doubtful Accounts would have been at the end of each year The following data have been obtained from the accounts: Chapter 8 Receivables 417 1 4 Year of Origin of Accounts Receivable Written Off as Uncollectible Uncollectible Accounts Year Sales Written Off 12 $ 900,000 $ 4,500 $4,500 2 1,250,000 9,600 3,000 $6,600 3 1,500,000 12,800 1,000 3,700 $8,100 2,200,000 16,550 1,500 4,300 $10,750 Instructions 1. Assemble the desired data, using the following column headings: Bad Debt Expense Increase Expense Expense (Decrease) Balance of Actually Based on in Amount Allowance Account Year Reported Estimate of Expense End of Year Experience during the first four years of operations indicated that the receivables were either collected within two years or had to be written off as uncollectible. Does the estimate of 1% of sales appear to be reasonably close to the actual experience with uncol- lectible accounts originating during the first two years? Explain