Compare Two Methods of Accounting for Uncollectible All money claims against other entities, including people, business firms, and other organizations.Receivables

Call Systems Company, a telephone service and supply company, has just completed its fourth year of operations. The The method of accounting for uncollectible accounts that recognizes the expense only when accounts are judged to be worthless.direct write-off method of recording The operating expense incurred because of the failure to collect receivables.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 The method of accounting for uncollectible accounts that provides an expense for uncollectible receivables in advance of their write-off.allowance method. Information is requested 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 The contra asset account for accounts receivable.Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts:

Year of Origin of Accounts Receivable Written Off as Uncollectible Year Sales Uncollectible Accounts Written Off 1st 2nd 3rd 4th 1st $900,000 $4,500 $4,500 2nd 1,250,000 9,600 3,000 $6,600 3rd 1,500,000 12,800 1,000 3,700 $8,100 4th 2,200,000 16,550 1,500 4,300 $10,750

Required:

1. Assemble the desired data. Enter a decrease in the amount of expense as a negative number and all other amounts as positive numbers.

Call Systems Company Schedule of Bad Debt Expense Year Expense Actually Reported Expense Based on Estimate Increase (Decrease) in Amount of Expense Balance of Allowance Account, End of Year 1st $ $ $ $ 2nd 3rd 4th

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2. Experience during the first four years of operations indicated that the receivables either were 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 uncollectible accounts originating during the first two years?

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