Allowance Method of Accounting for Bad Debts—Comparison of the Two Approaches Kandel Company had the following data available for 2010 (before making any adjustments):
Accounts receivable, 12/31/10 ………………………………$320,100
Allowance for doubtful accounts ………………………………..2,600
Net credit sales, 2010 …………………………………………834,000
Required
1. Identify and analyze the adjustment to recognize bad debts under the following assumptions:
(a) Bad debts expense is expected to be 2% of net credit sales for the year and
(b) Kandel expects it will not be able to collect 6% of the balance in accounts receivable at year-end.
2. Assume instead that the balance in the allowance account is a negative $2,600. How will this affect your answers to (1)?