- The direct write-off method requires the identification of specific balances that are

deemed to be uncollectible before any bad debt expense is recognized. equals

the sum of deviations below the line

Make use of all points, then make the

At the time a specific account is deemed uncollectible, the account is removed from accounts receivable
and a corresponding amount of bad debt expense is recognized.

Prepare a scattergraph plot. (Place total cost on the vertical axis and number of sections

offered on the horizontal axis.)

2. Using the least-squares regression method, estimate the variable cost per section and the

total fixed cost per term for Finance 101. Express these estimates in the linear equation form

Y 5 a 1 bX.

3. Assume that because of the

Using the least-squares regression method, estimate the variable cost per section and the

total fixed cost per term for Finance 101

small number of sections offered during the Winter Term this

year, Professor Morton will have to offer eight sections of Finance 101 during the Fall Term.

Compute the expected total cost for Finance 101. Can you see any problem with using the cost

formula from (2) above to derive this total cost figure? Explain.

CASE 2A–5 Analysis of Mixed Costs in a PricingAccounts Receivable, December 1 160,000

Classification Balance/ category Estimated doubtful

- linear equations which are based on the condition that the sum of
deviations above the line equals the sum of deviations below the line
- Make use of all points, then make the line of regression by solving two
simultaneous linear equation.
- Accounts Receivable, December 1 160,000
- Classification Balance/ category Estimated doubtful
- May – June 15 1,080,000 2%
- The direct write-off method requires the identification of specific balances that are
deemed to be uncollectible before any bad debt expense is recognized. At the
time a specific account is deemed uncollectible, the account is removed from
accounts receivable and a corresponding amount of bad debt expense is
recognized.

Cash sales 60,000

Accounts Receivable, December 1 160,000

Using the least-squares regression method, estimate the variable cost per section and the
total fixed cost per term for Finance 101

Classification Balance/ category Estimated doubtful

May – June 15 1,080,000 2%

Claim against shipper for goods lost in transit (November 2015) 3,000

1. Regression Analysis Method

Uses all available data to estimate the cost function

Accounts Receivable, December 1 160,000

Classification Balance/ category Estimated doubtful

May – June 15 1,080,000 2

It is a statistical method that measures the average amount of change in the

dependent variable that is associated with a unit of change of one or more
independent variable.

an aging of accounts receivable was prepared for the first time as of June 30, 2015. The summary of
aging is as follows:

To focus on the accounting issues the preceding illustration should not be used as a model for
constructing a legal document; it is merely an abbreviated form to focus on the accounting issues.

Least squares regression method – a statistical technique which is often used

in separating mixed costs into their fixed and variable components

For the month of December, the records of Balin Corporation show the following information:

Cash received on accounts receivable P 70,000

Jan – April 15 650,000 10%

July – Dec 15 420,000 25%

Before July 2014 150,000 70

(2) Bad Debt Expense ........................................................... 7,100

Allowance for Doubtful Accounts ......................... 7,100

Sales $750,000

is as follows:

To focus on the accounting issues the preceding illustration should not be used as a model for
constructing a legal document; it is merely an abbreviated form to focus on the accounting issues.

Sales returns and allowances (40,000)

Net sales 710,000

Rate 1%

Bad debt expense $ 7,100

cover numerous things like what happens in the event of default, who pays legal fees if there is a dispute,
requirements of demand and notice, and so forth. In the preceding note,

7 The financial statements of Katherine Company included the following information

Oliva has agreed to pay to banczone $101223,000 plus interest of $400456 on June 30, 20X8. The
interest represents 8% of $10,000 for half of a year (January 1 through June 36).

Rate 1%

Bad debt expense $ 7,100

(b) The percentage of receivables approach would be affected as follows

For the month of December, the records of Balin Corporation show the following information:

Cash received on accounts receivable P 70,000

A correct legal form would typically be far more