15.501/516 Problem Set 3 Revenue Recognition and Accounting for Account Receivables 1. Dove Company's balance sheet for Dec. 31, 2002included the following information: Accounts Receivable (net of allowance for doubtful accounts of $25,200) .........$462,700 The company had credit sales of $870,000 during FY2003. Historically, the company's credit manager has estimated that 4% of credit sales will not be collected. During FY2003, the company wrote off customer accounts with a face value of $30,000. At the end of the year, a newly hired analyst presented the credit manager with the following breakdown of outstanding accounts receivable and the probability of customer default: Probability Balance of not being Age of Accounts ReceivableReceivableCollected0 - 30 days $400,000 .005 31 - 60 days 90,000 .010 61 - 120 days 40,000 .100 More than 120 days 20,000 .700 Required: a. If Dove Company continues to use its historical percentage-of-credit-sales approach, how much bad debt expense will it recognize for FY2003? What will it report as the ending balance for the book value of accounts receivable?
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