Reference no: EM133145652

Question - Alicia Electronics recorded $425,000 of credit sales during its first year of operations. Alicia reported $102,000 (Dr.) in Accounts Receivable and $2,800 (Dr.) in Allowance for Doubtful Accounts before the adjustments at the end of the year.  The Accounts Receivable account has $65,000 that is current and $37,000 that is 30 days or older.  The accountant is wondering which method to use to estimate the bad debts.  She has 2 options:

1. 3% credit sales

2. Aging of accounts receivable: 1% of current Accounts Receivable, 20% of 30+

Required -

1. Calculate the bad debt expense using (1) The Income Statement Method (Percentage of Credit Sales Method), and (2) Balance Sheet Method (Aging of Accounts Receivables Method)

2. Prepare the adjusting journal entry to record bad debt expense using the two different methods

3. Explain the main difference between the two methods of estimating bad debts.