Excerpts from Bobcat Swank 2014 annual report follow:
2014
INCOME STATEMENT
Revenues…………………………………………….. $28,000
BALANCE SHEET
Current Assets:
Receivables, less allowance for doubtful accounts of $161 …….. $2,795
STATEMENT OF CASH FLOWS
Cash flows from operating activities: Net Income…………………………………………. $1,640
Bad Debt Expense ................................................................................................................ $159
2013
INCOME STATEMENT
Revenues…………………………………………….. $25,040
BALANCE SHEET
Current Assets:
Receivables, less allowance for doubtful accounts of $146 …….. $2,260
STATEMENT OF CASH FLOWS
Cash flows from operating activities: Net Income…………………………………………. $1,227
Bad Debt Expense ............................................................................................................... $153
Required: Answer the following questions assuming that a) Bobcat Swank uses the income statement method to estimate bad debt expense and b) all revenues are credit sales. Show NEAT calculations. T-Accts are your best friend!
1. How much of accounts receivable was written off during 2014? Use a T-Acct to figure this out.
2. What was the amount of cash collected on receivables during 2014? Use a T-Acct to figure this out.
3. Are estimated uncollectible accounts consistent with the increase in sales and accounts receivable? Explain your answer and show calculations to back up your claims.
4. Why is the "bad debt expense" added to net income in the operating section of the Statement of Cash Flows reconciliation?