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Recognition and Operating Income Cambridge Business Publishers 25 P5-60. Adjusting Allowance for Doubtful Accounts and Bad Debts Expense Merck & Company reported the following
Recognition and Operating Income Cambridge Business Publishers 25 P5-60. Adjusting Allowance for Doubtful Accounts and Bad Debts Expense Merck & Company reported the following from its 2019 financial statements. ANALYST ADJUSTMENTS 5.2 $ millions Accounts receivable, net. 2016 2017 2018 2019 Allowance for doubtful accounts $7,018 195 $6,873 159 $7,071 119 $6,778 86 a. Compute accounts receivable gross for each year. b. Determine the percentage of the Allowance for doubtful accounts to the gross Account receivables for each year. What trend do we observe? 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. Compute the four-year average and then reformulate the income statements and balance sheet for each of the four years. Follow the process shown in Analyst Adjustments 5.2 and assume a tax rate of 22% in all three years.
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