Reformulating Allowance for Doubtful Accounts and Bad Debt Expense

Merck & Company reported the following from its 2016 financial statements.

$ millions		2013	2014	2015	2016
Accounts receivable, net		$7,185	$6,627	$6,485	$7,017
Allowance for doubtful accounts		153	160	172	201

a. Compute accounts receivable gross for each year.

$ millions		2013	2014	2015	2016
Accounts receivable, gross		7338	6787	6657	7218

b. Determine the percentage of allowance to gross account receivables for each year.

Round answers to two decimal places (ex: 0.02345 = 2.35%).

	2013	2014	2015	2016
% allowance	2.09%	2.36%	2.58%	2.78%

c. Assume that we want to reformulate the balance sheet and income statement to reflect a constant percentage of allowance to gross accounts receivables for each year. Compute the four-year average and then reformulate the balance sheet and income statements for each of the four years. Follow the process shown in Analyst Adjustments 5.2 and assume a tax rate of 35%.

Four- year average of percentage of allowance to gross accounts receivables.

Round answer to two decimal places (ex: 0.02345 = 2.35%)

Answer = 2.45 %

Reformulate the balance sheet and income statements.

• Use rounded answer above for computations, then round answers to one decimal place.

• Use negative signs with answers to indicate the adjustment decreases an account.

		2013	2014	2015	2016
Adjusted allowance for doubtful accts.		?	?	?	?
Balance Sheets Adjustments		?	?	?	?
Allowance for doubtful accounts		?	?	?	?
Accounts receivable, net		?	?	?	?
Deferred tax liabilities		?	?	?	?
Retained Earnings		?	?	?	?
Income Statements Adjustments		?	?	?	?
Bad debts expense		?	?	?	?
Income tax expense at 35%		?	?	?	?
Net Income		?	?	?	?

Please use the information above to calculate the answers to the boxes with questions mark