Reference no: EM132898895

Question - Estimating Bad Dets Keegan Co. Accounting records disclosed the following information for 2019

Cash Sales $900,000

Net Credt Rece $750,000

Account receivable (12/31/2019) $160,000

Allowance for doubtful account (12/31/2019, prior to adjustment) $1,500 (debit)

Keegan wishes to examine the effect of various alternative bad debt estimation policies.

Required -

1. Prepare the adjusting entry that would be required under each of the following methods:

a. Bad debts are estimated at 3% of net credit sales.

b. Bad debts are estimated at 7.5% of gross accounts receivable.

c. An aging of accounts receivable indicates that half of the outstanding accounts will incur a 3% loss, a quarter will incur a 6% loss, the remaining quarter will incur a 20% loss.

2. Next Level Discuss the difference between the income statement and balance sheet approaches to estimating bad debts.