Merck & Company reported the following from recent financial statements.

$ millions Year $1$ Year $2$ Year $3$ Year $4$

Accounts receivable, net $$9,123$ $$8,935$ $$9,192$ $$8,811$

Allowance for doubtful accounts $263215161116$

a$.$ Compute accounts receivable gross for each year.

$ millions Year $1$ Year $2$ Year $3$ Year $4$

Accounts receivable, gross Answer $1$

$9,386$

Answer $2$

$9,150$

Answer $3$

$9,353$

Answer $4$

$8,927$

b$.$ Determine the percentage of the Allowance for doubtful accounts to the gross Account receivables for each year. Round percentages to two decimal places.

$ millions Year $1$ Year $2$ Year $3$ Year $4$

Allowance as $\%$ of A$/$R$,$ gross Answer $5$

$2\mathrm{.}8$

Answer $6$

$2\mathrm{.}35$

Answer $7$

$1\mathrm{.}72$

Answer $8$

$1\mathrm{.}3$

What trend do we observe?

The allowance as a $\%$ of gross Accounts receivable is Answer $9$

decreasing

$.$

c$.$ Assume that we want to reformulate the income statement and balance sheet to reflect a constant percentage of allowance to gross accounts receivable for each year. HINT: Follow the process shown in Analyst Adjustments $5\mathrm{.}2.$

Compute the four$-$year average. Round to two decimal places.

Answer $10$

$2\mathrm{.}04$

$\%$

Reformulate the income statements and balance sheet for each of the four years. Found to the nearest whole dollar amount. Follow the process shown in Analyst Adjustments $5\mathrm{.}2$ and assume a tax rate of $22\%$ in all three years.

Reformulated statement data

$ millions Year $1$ Year $2$ Year $3$ Year $4$

Income Statements Adjustments

Bad debts expense Answer $11$

$(72)$

Answer $12$

$0$

Answer $13$

$0$

Answer $14$

$0$

Pretax income Answer $15$

$(28)$

Answer $16$

$0$

Answer $17$

$0$

Answer $18$

$0$

Income tax expense at $22\%$ Answer $19$

$0$

Answer $20$

$0$

Answer $21$

$0$

Answer $22$

$0$

Net Income Answer $23$

$0$

Answer $24$

$0$

Answer $25$

$0$

Answer $26$

$0$

Balance sheet adjustments

Allowance for doubtful accounts Answer $27$

$9,683$

Answer $28$

$0$

Answer $29$

$0$

Answer $30$

$0$

Accounts receivable, net Answer $31$

$9,123$

Answer $32$

$0$

Answer $33$

$0$

Answer $34$

$0$

Deferred tax liabilities at $22\%$ Answer $35$

$0$

Answer $36$

$0$

Answer $37$

$0$

Answer $38$

$0$

Retained Earnings Answer $39$

$0$

Answer $40$

$0$

Answer $41$

$0$

Answer $42$

$0$