Adjusting Allowance for Doubtful Accounts and Bad Debts Expense

Merck & Company reported the following from its 2016 financial statements.

$ millions		2013	2014	2015	2016
Accounts receivable, net		$7,185	$6,627	$6,485	$7,017
Allowance for doubtful accounts		153	160	172	201

a. Compute accounts receivable gross for each year.

$ millions		2013	2014	2015	2016
Accounts receivable, gross		Answer	Answer	Answer	Answer

b. Determine the percentage of allowance to gross account receivables for each year.

Round answers to two decimal places (ex: 0.02345 = 2.35%).

	2013	2014	2015	2016
% allowance	Answer	Answer	Answer	Answer

c. Assume that we want to reformulate the balance sheet and income statement to reflect a constant percentage of allowance to gross accounts receivables for each year. Compute the four-year average and then reformulate the balance sheet and income statements for each of the four years. Follow the process shown in Analyst Adjustments 5.2 and assume a tax rate of 35%.

Four- year average of percentage of allowance to gross accounts receivables.

Round answer to two decimal places (ex: 0.02345 = 2.35%)

Answer 2.45%

Reformulate the balance sheet and income statements.

Use rounded answer above for computations, then round answers to one decimal place.

Use negative signs with answers to indicate the adjustment decreases an account.

		2013	2014	2015	2016
Adjusted allowance for doubtful accts.		Answer	Answer	Answer	Answer
Balance Sheets Adjustments
Allowance for doubtful accounts		Answer	Answer	Answer	Answer
Accounts receivable, net		Answer	Answer	Answer	Answer
Deferred tax liabilities		-9.5	Answer	Answer	Answer
Retained Earnings		-17.5	Answer	Answer	Answer
Income Statements Adjustments
Bad debts expense		Answer	Answer	Answer	Answer
Income tax expense at 35%		-9.5	-2.3	3	8.4
Net Income		-17.5	-4.2	5.7	15.6