EMC manufactures large-scale, high-performance computer systems. In a recent annual report, the included the following information ($ in millions):
In addition, the income statement reported sales revenue of $24,704 ($ in millions) for the current year. All sales are made on a credit basis. The statement of cash flows indicates that cash collected from customers during the current year was $25,737 ($ in millions). There were no recoveries of previously written off.
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1. Compute the following ($ in millions):
a. The amount of bad debts written off by EMC during 2015.
b. The amount of bad debt expense that EMC included in its income statement for 2015.
c. The approximate percentage that EMC used to estimate bad debts for 2015, assuming that it used the income statement approach.
2. Suppose that EMC had used the direct write-off method to account for bad debts. Compute the following ($ in millions):
a. The information that would be included in the 2015 year-end The amount of bad debt expense that EMC would include in its 2015 income statement.