The Dubious Company Operates in an Industry Where All Sales

question 121

Essay

The Dubious Company operates in an industry where all sales are made on account. Historically, Dubious has experienced a steady 1.0% of credit sales being uncollectible. Presented below is the company's forecast of sales and expenses over the next three years. Using this information:
a. Calculate bad debt expense and net income for each of the three years, assuming uncollectible accounts are
estimated as 1.0% of sales.
b. Comment on the trend in net income changes from Year 1 to Year 2 and from Year 2 to Year 3.
c. Suppose the company changes its estimate of uncollectible credit sales to 1.0% in year 1, 2.0% in year 2 and
1.5% in year 3. Calculate the bad debt expense and net income for each of the three years under this alternative
scenario.
d. Comment on the trend in net income changes determined in requirement c from Year 1 to Year 2 and Year 2
to Year 3.
e. Under which scenario (a or c) do you feel most confident when predicting the net income likely to be earned in Year 4? What contributes to this feeling?

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Definitions:

Traits

Enduring characteristics or patterns of thoughts, feelings, and behaviors that are relatively stable over time and across situations, which differentiate one person from another.

Environment

The surrounding conditions, influences, or forces which affect the development, action, or survival of an individual or organism.

Gene-environment Interactions

The complex interplay between genetic predispositions and environmental factors that influence individual characteristics and behaviors.

Trait Expression

The manner in which an individual's characteristics or qualities are displayed or manifested in their behavior.