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  3. a company showed the following pattern of sales, b

A company showed the following pattern of sales, bad debt expense, and net receivables for...

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Accounting

A company showed the following pattern of sales, bad debt expense, and net receivables for 20x1 through 20x5 (in $ millions):

20x1 20x2 20x3 20x4 20x5

Sales........................... $140 $150 $165 $175 $195

Bad debt expense........... 7 7 8 10 10

Ending net receivables ... 40 50 60 75 95

  1. Assuming the beginning balance of net receivables was $30 in 20x1, calculate the cash collected from customers each year from 20x1 to 20x5.
  2. For each year presented, calculate the following ratios:
    1. Bad debt expense/sales
    2. Net receivables/sales
    3. Cash collections/sales
  3. Based on the patterns of sales, net receivables, and cash collections in part a and ratios calculated in part b, discuss the adequacy of the provision for bad debts.
  4. Assuming that bad debts expense is the only expense item, calculate net income for each year. Show the calculation of cash flow from operations each year under the indirect method. (Learn from this exercise by comparing your answer to the answer for part a above.)

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