Reformulating Allowance for Doubtful Accounts ADJUSTMENTS 52 Community Health Systems operates hospitals and other medical facilities across the U.S. The compan reported the following in its 2016 financial statements Substantially all of our accounts receivable are related to providing healthcare services to patients at our hospitals and affiliated businesses. Our primary collection risks relate to uninsured patients and outstanding patient balances for which the primary insurance payor has paid some but not all of the outstanding balance. We estimate the allowance for doubtful accounts by reserving a percentage of all self-pay accounts receivable without regard to aging category. For all other non-self-pay payor categories, we reserve an estimated amount based on historical collection rates for the portion of all accounts aging over 365 days from the date of discharge. Collections are impacted by the economic ability of patients to pay and the effectiveness of our collection efforts. Year Ended December 31 ($ millions) 2016 2015 2014 Operating revenues (net of contractual allowances and discounts) Provision for bad debts $21,275 $22.564 $21,561 2,837 3,127, 2,922 13. 381 . % ) ,85% i 3.SS Patient acounts receivable, net of allowance for doubtful acounts of $3,773, $4,110, and $3,504 at December 31, 2016, 2015, and 2014 respectively a. Explain in general terms how the company estimates its allowance for doubtful accounts. b. Analyze the bad debt expense for all three years by computing bad debts as a percent of operating c. Analyze the allowance account for each of the three years by computing the ratio of the allowance to d. Assume that we anticipate that charges to the Affordable Care Act will create more self-pay patients, revenues. What trend do we observe? gross accounts receivable. What trend do we observe? rendering the allowance too low. Suggest adjustments to the 2016 balance sheet and income statement t of allowance to gross accounts receivable is 60%. As- accounts under the assumption that the percent sume a tax rate of 35%. a Balance sheet adjustments for i. Allowance for doubtful accounts i. Accounts receivable, net iii. Deferred tax liabilities iv. Retained earnings Income statement adjustments for: v. Bad debts expense vi. Income tax expense vii. Net income Allocate transaction price. Windsor Windows manufactures and sells custom storm windows for enclosed porches. Windsc also provides installation service for the windows. The installation process does not involve changes in the windows, so this service can be provided by other vendors. Windsor enters into the following contract on June 1, 2018, with a local homeowner. The customer purchases windows fo a price of $4,700 and chooses Windsor to do the installation. Windsor charges the same price fo the windows irrespective of whether it does the installation or not. The price of the installatior service is estimated to have a fair value of $1,200. The customer pays Windsor $4,000 (which equals the fair value of the windows, which have a cost of $2,300) upon delivery and the remaining balance upon installation of the windows. The windows are delivered on August 1 2018, Windsor completes installation on September 15, 2018, and the customer pays the balance due. Prepare the journal entries for Windsor in 2018. (Round amounts to nearest dollar.) ong-term construction project accounting oobson Construction specializes in the construction of commercial and industrial buildings. The contractor is experienced in bidding long-term construction projects of this type, with the typica project lasting fifteen to twenty-four months. The contractor uses the percentage-of-completion method of revenue recognition since, given the characteristics of the contractors business and contracts, it is the most appropriate method. Progress toward completion is measured on a cost- to-cost basis. Dobson began work on a lump-sum contract at the beginning of 2018. As bid, the statistics were as follows: Lump-sum price (contract price) Estimated costs $8,000,000 Labor Materials and subcontractor Indirect costs $1,700,000 3,500,000 800,000 6.000.000 At the end of the first year, the following was the status of the contract Billings to date Costs incurred to date $4,500,000 $ 928,000 1,296,000 Labor Materials and subcontractor 2,610,000 6,000,000 Indirect costs Latest forecast total cost It should be noted that included in the above costs incurred to date were standard electrical and mechanical materials stored on the job site, but not yet installed, costing $210,000. These costs should not be considered in the costs incurred to date. Instructions (a) Compute the percentage of completion on the contract at the end of 2018. (b) Indicate the amount of gross proft that would be reported on this contract at the end of 2018. (c) Make the journal entry to record the income (loss) for 2018 on Dobson's books. (d) Indicate the account(s) and the amount(s) that would be shown on the balance sheet of Dobson Construction at the end of 2018 related to its construction accounts. Also indicate where these items would be classified on the balance sheet. Billings collected during the year amounted to $3,800,000 Assume the latest forecast on total costs at the end of 2018 was $8,120,000. How much income (loss) would Dobson report for the year 2018? (e)