Compare Two Methods of Accounting for Uncollectible Receivables 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 as to the effect that an annual provision of 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 Year of Origin of Accounts Receivable Written Off as Uncollectible Year Sales Uncollectible Accounts Written Off 1st 2nd 3rd 4th 1st $1,240,000 $1,100 $1,100 2nd 1,860,000 3,150 1,500 $1,650 3rd 2,560,000 11,150 3,250 2,550 $5,350 4th 3,360,000 16,450 3,800 5,600 $7,050 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 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 2 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 of sales appear to be reasonably close to the actual experience with uncollectible accounts originating during the first two years

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Compare Two Methods of Accounting for Uncollectible Receivables Call Systems Company, a telephone service and supply company, has just completed its fourth year of operations.

Compare Two Methods of Accounting for Uncollectible Receivables

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 as to the effect that an annual provision of % 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:

			Year of Origin of Accounts Receivable Written Off as Uncollectible
Year	Sales	Uncollectible Accounts Written Off	1st	2nd	3rd	4th
1st	$1,240,000	$1,100	$1,100
2nd	1,860,000	3,150	1,500	$1,650
3rd	2,560,000	11,150	3,250	2,550	$5,350
4th	3,360,000	16,450		3,800	5,600	$7,050

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
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

2. 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 % of sales appear to be reasonably close to the actual experience with uncollectible accounts originating during the first two years?